March 14, 2016
This is the first in a series of profiles of the members of the Federal Reserve Board’s Open Market Committee [FOMC]. The profiles will focus on their writings, public statements, and voting records as members of the FOMC.
Esther George has been one of the more hawkish members of the FOMC since becoming President of the Federal Reserve Bank of Kansas City in October of 2011. She first became a voting member of the FOMC in 2013. In her first seven meetings, she dissented from the majority each time and argued that the Fed should move to more restrictive monetary policy. (The statements on the dissents, from the Fed’s minutes, are at the end of this post.) In six of the seven cases, she was the lone dissenter.
In 2014 and 2015 she continued to argue for tighter monetary policy in her public speeches. For example, in the summer of 2014 she argued that keeping the federal funds rate near zero could be signaling excessive pessimism and therefore have a negative effect on the economy:[1]
“And by keeping rates unusually low, policymakers may signal pessimism that the economy is not strong enough to begin moving to a more normal rate environment.”
In another speech in June of 2014 George warned of rising inflation:
“And although inflation has been low for a few years, it is not hard today to see examples of rising prices. Food prices have risen sharply over the past few months. People who rent either a house or apartment are also seeing a steady rise in the rents they are paying. And having just moved through the graduation season, I would note that the rise in tuition costs continues to outpace the price of many other goods. Because of these factors, I expect inflation to move nearer to the FOMC’s two percent goal.”[2]
In a speech given in the Philippines in February of 2015, George argued that macroprudential policies aimed at combatting assets bubbles needed to be supplemented by more restrictive monetary policy:[3]
“This line of thinking suggests to me that modestly tighter policy earlier in the business cycle expansion could moderate risk taking and the potential for destabilizing financial imbalances to build.”
In a speech the following month she argued that the Fed should begin to raise rates in the summer of 2015.[4] She argued that it was important to act in advance of inflationary pressures because of the long and variable lags associated with monetary policy:
“Liftoff in the middle of the year, in my view, would be fully consistent with the FOMC’s Statement on Goals and Monetary Policy Strategy, which reminds the public that ‘monetary policy actions tend to influence economic activity and prices with a lag.’ This means some time will pass before we can see the effects of interest rate decisions, so monetary policy must be forward looking and act before the economy reaches full employment and two percent inflation. Waiting until economic conditions are nearly back to normal before raising rates may put policy behind the curve and require rates to rise rapidly in the future.”
In short, President George has consistently argued for higher interest rates, although often with different rationales. Most often she has raised the specter of higher inflation as the main reason for higher interest rates. However she also argued that higher rates may be needed to combat asset bubbles and even that low interest rates could be contributing to pessimism about the economy’s prospects. Thus far, it is clear that her concerns about inflation have not been supported by the data.
[1] George, Esther L. 2014. “A Steady Transition for Monetary Policy.” 2014 Agricultural Symposium, Federal Reserve Bank of Kansas City, Kansas City, MO. July 15, 2014. https://www.kansascityfed.org/publicat/speeches/2014-George-KansasCity-AgSymposium-07-15.pdf.
[2] George Esther L. 2014. “The Path to Normalization.” Speech to Business and Community Leaders Luncheon, Breckenridge, CO. June 3, 2014. https://www.kansascityfed.org/~/media/files/publicat/speeches/2014-george-breckenridge-businessleaders-06-03.pdf.
[3] George, Esther L. 2015. “Monetary and Macroprudential Policy: Complements, not Substitutes.” Financial Stability Institute/Bank for International Settlements, Asia-Pacific High-Level Meeting, Manila, Philippines. February 10, 2015. https://www.kansascityfed.org/publicat/speeches/2015-George-Manila-BIS-02-10.pdf.
[4] George, Esther L. 2015. “The Next Phase of Monetary Policy.” Central Exchange, Kansas City, MO. March 4, 2015. https://www.kansascityfed.org/publicat/speeches/2015-George-KansasCity-CentralExchange-03-04.pdf.
Fed Minutes
January 29, 2013
Voting against this action: Esther L. George.
Ms. George dissented out of concern that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in inflation expectations. In her view, the potential costs and risks posed by the Committee’s asset purchases outweighed their uncertain benefits. Although she noted that monetary policy needed to remain supportive of the economy, Ms. George believed that policy had become too accommodative and that possible unintended side effects of ongoing asset purchases, posing risks to financial stability and complicating future monetary policy, argued against continuing on the Committee’s current path.
March 19, 2013
Voting against this action: Esther L. George.
Ms. George dissented because she continued to view monetary policy as too accommodative and therefore as posing risks to the achievement of the Committee’s economic objectives in the long run. In particular, the current stance of policy could lead to financial imbalances, a mispricing of risk, and, over time, higher long-term inflation expectations. In her view, the Committee’s asset purchases were providing relatively small benefits, and, given the risks that they posed as well as the improvement in the outlook for the labor market, she thought they should be wound down.
It was agreed that the next meeting of the Committee would be held on Tuesday-Wednesday, April 30–May 1, 2013. The meeting adjourned at 11:30 a.m. on March 20, 2013.
May 1, 2013
Voting against this action: Esther L. George.
Ms. George dissented because she continued to view monetary policy as overly accommodative and therefore as posing risks to the long-term sustainable growth of the economy. She expressed concern that the stance of policy might be fostering imbalances and excessive risk-taking in some financial markets and institutions, and she cited the potential for the Committee’s ongoing asset purchases to complicate the future conduct of policy, raise uncertainty, and affect future inflation expectations. Accordingly, Ms. George preferred to signal a near-term tapering of asset purchases, which would begin to move policy toward a more appropriate stance.
June 19, 2013
Voting against this action: James Bullard and Esther L. George.
Mr. Bullard dissented because he believed that, in light of recent low readings on inflation, the Committee should signal more strongly its willingness to defend its goal of two percent inflation. He pointed out that inflation had trended down since the beginning of 2012 and was now well below target. Going forward, he viewed it as particularly important for the Committee to monitor price developments closely and to adapt its policy in response to incoming economic information.
Ms. George dissented because she viewed the ongoing improvement in labor market conditions and in the outlook as warranting a deliberate statement from the Committee at this meeting that the pace of its asset purchases would be reduced in the very near future. She continued to have concerns about maintaining aggressive monetary stimulus in the face of a growing economy and pointed to the potential for financial imbalances to emerge as a result of the high level of monetary accommodation.
July 30, 2013
Voting against this action: Esther L. George.
Ms. George dissented because she favored including in the policy statement a more explicit signal that the pace of the Committee’s asset purchases would be reduced in the near term. She expressed concerns about the open-ended approach to asset purchases and viewed providing such a signal as important at this time, in light of the ongoing improvement in labor market conditions as well as the potential costs and uncertain benefits of large-scale asset purchases.
It was agreed that the next meeting of the Committee would be held on Tuesday-Wednesday, September 17–18, 2013. The meeting adjourned at 12:30 p.m. on July 31, 2013.
September 17, 2013
Voting against this action: Esther L. George.
Ms. George dissented because she saw recent information on the economy as sufficiently positive to warrant a reduction in the pace of the Committee’s asset purchases at this meeting. In her view, waiting for more evidence of progress discounted the cumulative improvement in the economy as well as the potential costs of ongoing purchases. Accordingly, not only would a reduction be appropriate in light of the ongoing improvement in labor market conditions, but it also would support the credibility and predictability of monetary policy because it would be seen as following through on the Committee’s earlier communications about the outlook for the asset purchase program.
It was agreed that the next meeting of the Committee would be held on Tuesday-Wednesday, October 29–30, 2013. The meeting adjourned at 11:15 a.m. on September 18, 2013.
October 29, 2013
Voting against this action: Esther L. George.
Ms. George dissented because she did not see the continued aggressive easing of monetary policy as warranted in the face of both actual and forecasted improvements in the economy. In her view, the cumulative progress in labor markets justified taking steps toward slowing the pace of the Committee’s asset purchases. Moreover, market expectations for the size of the purchase program had continued to escalate despite that progress, increasing her concerns about communications challenges and the potential costs associated with asset purchases.
It was agreed that the next meeting of the Committee would be held on Tuesday-Wednesday, December 17–18, 2013. The meeting adjourned at 12:05 p.m. on October 30, 2013.
