By Jonathan Spicer
NEW YORK, Sept 20 A hawkish Federal Reserve
policymaker on Friday sharply criticized her colleagues'
decision this week not to reduce the Fed's bond-buying program,
warning it sowed confusion and risked the U.S. central bank's
credibility given how convinced financial markets were that
policy would be adjusted.
Kansas City Fed President Esther George, the lone dissenter
on Wednesday's policy decision, said she was "disappointed." She
noted the "costly steps taken to prepare markets" in recent
months for a policy change, and warned that the Fed's message
has been muddled.
"The actions at this meeting, and the expectations that have
been set relative to how markets were thinking about this,
created confusion, created a disconnect," George told a meeting
of the Shadow Open Market Committee, a group critical of the
Fed's easy-money stance.
The Fed "will also have to think about the challenges that
come with issues of credibility and the predictability of policy
actions," George said. The central bank now "faces ahead of it
some difficult moves," she added.
The central bank surprised financial markets globally this
week when it decided to keep buying $85-billion worth of bonds
per month. It cited fiscal headwinds and tighter overall
financial conditions as reasons to continue its aggressive
support for the U.S. economy.
Back in June, Chairman Ben Bernanke said the Fed expected to
trim its bond-buying later this year and to end it around
mid-2014. He seemed to step back from that timeline in a
Wednesday press conference, giving investors more reason to
drive up risky assets around the world, including U.S. stocks.
George, an isolated voice on the policy-setting Federal Open
Market Committee, has dissented at every meeting this year and
did so again this week on views the low-rate policy could lead
to asset-price bubbles.
"We will continue to add to that balance sheet ... and the
conditions will remain for some time that allow risk and
imbalances to grow," she said.
"Waiting for more evidence at this point in the face of
continued economic growth unnecessarily discounts the very real
progress that we see, and it also discounts the potential costs
of the policy tool with which we have limited experience."
George urged fellow policymakers to rely less on the
bond-buying program and more on telegraphing when the Fed will
finally raise interest rates. But now, asking markets to trust
such so-called forward guidance "is going to require a great
deal of credibility and communication," she said.
Earlier this month, George publicly urged the Fed to reduce
the asset purchases to $70 billion per month at the September
"It was my sense at this meeting that moving now and moving
slowly would not eliminate volatility in the market but it could
give the market space to begin to adjust gradually," she said