Fed's George says it's time to 'dial back the settings' on monetary policy

(Reuters) – The U.S. economy is growing at a robust pace, signaling it is time to start dialing back the support provided through monetary policy, Kansas City Federal Reserve President Esther George said on Wednesday.

FILE PHOTO: Kansas City Federal Reserve Bank President Esther George addresses the National Association for Business Economics in Denver, Colorado, U.S. October 6, 2019. REUTERS/Ann Saphir/File Photo

Strong support offered through fiscal and monetary policy helped to usher the economy out of the crisis caused by the coronavirus pandemic, but less aid is needed now that many consumers have stockpiled cash and the labor market is rebounding, George said.

“Today’s tight economy … certainly does not call for a tight monetary policy, but it does signal that the time has come to dial back the settings,” George said during a virtual seminar organized by the National Association for Business Economics.

U.S. economic growth may “step down” now that the boost from fiscal aid has peaked, but the rebound is likely to remain “robust,” George said. She said she expects the labor market to recover at a rapid pace as schools reopen and enhanced unemployment benefits expire.

However, a rise in coronavirus infections caused by the contagious Delta variant could make consumers cautious or lead to renewed restrictions, potentially slowing the recovery, George said.

Fed officials slashed rates to near zero levels last year and agreed to keep purchasing $120 billion in government bonds a month until there is “substantial further progress” toward the central bank’s goals for inflation and employment.

The policymaker said that standard for reducing asset purchases may have been met through the current spike in inflation, the recovering labor market and the expectation for continued strong demand.

“I support bringing asset purchases to an end under these conditions,” George said. She added that the timing of the tapering “is not mechanically connected to the timing of any policy rate adjustment.”

George said she expects inflation will moderate. She said it will be important for policymakers to keep a close eye on inflation expectations.

“We do see firms having more pricing power than they would have five years ago, even two years ago, and the public is certainly more aware today of inflation,” George said.

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