* George sees US growth above 2 pct; Bullard sees 3.2 pct
* George sees U.S. unemployment down 0.5 pct point this year
* Bullard sees unemployment falling to 6.5 pct in mid-2014
* Analyst sees George as hawkish dissenter for 2013
By Ann Saphir and Alister Bull
MADISON, Wis./KANSAS CITY, Jan 10 Two top
Federal Reserve policymakers expressed discomfort on Thursday
with the U.S. central bank's easy monetary policy, suggesting
Fed Chairman Ben Bernanke may face more dissent this year.
In remarks that stamped her as a hawk on the Fed's
policy-setting committee, Kansas City Federal Reserve President
Esther George warned that the Fed's near zero interest-rate
policy - aimed at boosting the economy - could spark inflation.
"A prolonged period of zero interest rates may substantially
increase the risks of future financial imbalances and hamper
attainment of the 2 percent inflation goal in the future," she
said in her most extensive remarks in a year on policy.
"Monetary policy, by contributing to financial imbalances
and instability, can just as easily aggravate unemployment as
heal it," she said.
George this month will cast her first vote on monetary
policy since taking the helm at the Kansas City Fed in October
"The latest remarks from Kansas City Fed's Esther George
have cemented the presence of a hawkish dissenter on the FOMC in
2013, with Richmond Fed's Lacker passing along the hawkish
torch," said Gennadiy Goldberg, U.S. strategist at TD
Lacker was the lone dissenter on the Fed's policy-setting
panel last year.
St. Louis Fed President James Bullard, who also votes this
year on U.S. monetary policy, also warned about the potential
for inflation, although he noted that so far inflation is
running under the Fed's 2 percent goal.
"It is a very aggressive policy and it is making me a little
bit nervous that we are overcommitting to the easy policy," he
told reporters after a speech to the Wisconsin Bankers
Association. "We are taking risk."
Last month, the Fed voted to keep up asset purchases at an
$85 billion monthly pace to lower borrowing costs and spur
hiring. It said it would continue this policy, called
quantitative easing, until it saw substantial improvement in the
labor market outlook.
U.S. central bankers also pledged to hold interest rates
near zero until unemployment falls to 6.5 percent, provided
inflation does not threaten to rise above 2.5 percent.
As Fed officials mull when to taper or end the asset
purchases - some, including Bullard, say that could happen this
year - the debate may focus on potential inflation.
GEORGE BEARISH, BULLARD BULLISH
So will the outlook for the economy. On this front, George
was decidedly more downbeat than her colleague, saying she
expects the U.S. economy to grow just above a 2 percent in 2013,
while unemployment falls around another half percentage point.
Bullard sees growth at 3.2 percent this year and next, he
said Thursday, and sees the jobless rate dropping to 6.5 percent
- the Fed's threshold for rethinking its low-rate policy - by
the middle of next year. The U.S. jobless rate in December was
George emphasized the risks if the Fed continues to buy
bonds at this rate, indicating little appetite for a prolonged
Fed commitment to this policy.
"These purchases also have their own set of risks and are
not without cost," she said. "At their current level and pace of
growth, I believe they almost certainly increase the risk of
complicating the (Fed)'s exit strategy."
Fed watchers have not heard much from George since she
became a policy maker, but Fed watchers had anticipated she
would follow her predecessor Thomas Hoenig in holding hawkish
views, and her remarks Thursday did not disappoint.
Though Bullard too warned about the risks of inflation, he
sounded more ready to stay the course on policy, for now.
"We've been predicting higher inflation and it really hasn't
materialized so far," he said. "I think the way to proceed is to
continue to be aggressive in our monetary policy and be
cognizant that we could have an inflation problem in the future
and that we would be ready to move and contain that if we need