By BRENT MARTIN
St. Joseph Post
Kansas City Federal Reserve Bank President Esther George says the U.S. economy has made a remarkable recovery after the devastating blow dealt it by the coronavirus pandemic.
“The economy has recovered in many respects,” George says. “So, output, meaning the growth we have in the economy, is back from pre-pandemic levels. Unemployment is coming down, rapidly, even though it hasn’t fully recovered yet. That’s coming down. And demand is soaring. We have really strong demand in our economy right now.”
George spoke to reporters after delivering the keynote address at the St. Joseph Chamber of Commerce 2021 Economic Summit on the Missouri Western State University campus Friday.
George says the pandemic sent the economy into a freefall 18 months ago.
George says inflation has been more persistent than many foresaw. She says the markets reacted favorably to the Fed tapering the asset purchases it began at the depth of the pandemic-induced economic downturn, because the Fed signaled its intentions early.
“And I think what we’ve learned is our communication is important, to set expectations for the markets, to explain how we’re thinking about the economy,” George says. “That, of course, is a conversation that happens around a big table as we each present our views on how we do that. So, communicating clearly about the next steps is going to be important.”
George refers to the Federal Reserve’s Federal Open Market Committee (FOMC), which guides Fed monetary policy, primarily through asset purchases, setting interest rates, and setting bank reserve requirements. Directors of the regional Federal Reserve Banks, such as George, rotate as voting members of the FOMC, though they provide input, voting or not. George becomes a voting member again next year. The FOMC holds eight meetings each year.
George says the Federal Reserve acted appropriately during the pandemic by buying assets and lowering interest rates to prop up the ailing economy. She says now the Fed needs to back off; continue to taper asset purchases and begin to discuss raising interest rates.
George says she doesn’t want to tighten financial conditions, though.
“I do not want to derail the economy,” George says. “And that’s why I’m arguing starting sooner rather than later with beginning to talk to the public about when will we raise interest rates?”
George says interest rates will likely be raised at least twice in the coming year.