By Alister Bull
WASHINGTON Oct 17 The U.S. central bank should
start scaling back its bond-purchase program this month, Kansas
City Federal Reserve President Esther George said on Thursday,
repeating her view that the Fed ought to begin normalizing
"I think to start that now would give us time to see how the
economy reacts to that and not get behind in meeting our
responsibilities," she told an event in Oklahoma City.
George is a voter on the Fed's policy-setting committee this
year and has dissented at every meeting since January against
the Fed's ultra-easy monetary policy, arguing that this could
stoke future inflation and undermine financial instability.
"This is likely to be a long process - in terms of unwinding
an $85 billion dollar a month pace of accommodation - before we
even talk about raising interest rates," she said, underscoring
her argument why the Fed cannot afford to delay any longer.
Many economists think the Fed will take no action at its
meeting later this month because much of the economic data it
relies upon has been delayed by a 16-day shutdown of parts of
the federal government. George didn't see things that way.
"We are missing a few pieces of data that we would normally
have as a result of the government shutdown. But let me assure
you, we are still quite able to monitor and judge the economy's
progress from other sources of information," she said.
Lawmakers voted on Wednesday to end the shutdown and raise
the U.S. debt limit, averting the threat of a destructive
George acknowledged that growth was tepid, probably around
only 2 percent in the second half of the year, but was more
optimistic for 2014 and said the underlying tone was solid.
"To be sure this has been a slow recovery. But I am struck
by the fact that it has been a resilient recovery...it has been
resilient in the face of some very strong headwinds," she said.
One of the other challenges facing policymakers in coming
months is a change in leadership after President Barack Obama
nominated Fed Vice Chair Janet Yellen to replace Ben Bernanke
when he steps down in January. George said this continuity
should be helpful for investor confidence.
"The fact that she has been inside the Fed, I think, will be
reassuring to the markets that transition should be smoother
than if we brought in someone that was less well known to the
Federal Reserve," she said.