By MICHAEL S. DERBY
NEW YORK--Federal Reserve Bank of Kansas City President Esther
George wants to see the U.S. central bank start raising short-term
interest rates at some point over the summer, worrying that if Fed
doesn't get moving soon future rate increases may have to be more
aggressive.
"I continue to support liftoff towards the middle of this year
due to improvement in the labor market, expectations of firmer
inflation, and the balance of risks over the medium and longer
run," Ms. George said in the text of a speech prepared for a local
event in Kansas City, Mo. "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."
Ms. George spoke as central bankers are actively debating the
timing of when they will raise their short-term interest rate
target off of its current near-zero level, where it has been since
the end of 2008. Most central bankers say they support boosting
rates this year in light of the decent growth and solid gains in
the job market. Giving pause to the press for higher rates has been
pervasive weakness in inflation: the Fed has fallen short of its 2%
inflation target for nearly three years, and price pressures are
weakening, not getting stronger.
A number of officials have said the door to rate increases opens
with the June meeting, although few have said they would like to
see the Fed act at any given meeting. St. Louis Fed President James
Bullard warned in an interview last week that if rate increases
haven't started by the end of the third quarter, the central bank
may have waited too long. Meanwhile, Chicago Fed leader Charles
Evans said in a speech earlier Wednesday the very weak inflation
environment indicates the Fed should hold off on rate rises until
next year.
Ms. George doesn't currently have a vote on the monetary policy
setting Federal Open Market Committee. The official has long
advocated in favor of raising rates, worrying that keeping rates
very low risked an inflation break out and bubbles in financial
markets.
Ms. George emphasized that modest rate increases would still
leave the economy with a lot of central bank support. Boosting
rates would be a "removal of accommodation," not a "tightening" of
monetary policy, she said.
Ms. George was largely upbeat about the state of the economy,
and doesn't share some of her colleagues' anxiety about inflation.
Ms. George said there are signs that wage gains are heating up,
while the collapse in oil prices is the main reason headline price
indexes are so weak.
"While inflation is somewhat below the Fed's 2% goal, I am not
overly concerned with this shortfall. Instead, I see current and
forecasted inflation as generally consistent with price stability,"
she said.
Meanwhile, "momentum in the labor market will likely continue
going forward," Ms George said. "The U.S. economy is expanding at
an above-trend growth rate, which I expect to continue through the
end of the year," she said, adding the strong dollar and foreign
weakness could create some headwinds.
Write to Michael S. Derby at Michael.derby@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires