May 10, 2013
Fed Economist Predicts 2% Growth of Economy in 2013
Esther George, President of the Federal Reserve Bank of Kansas City, said that the economy will likely grow 2 percent this year. George says that this is spurred by the Fed’s stimulus policies, which threaten to push up long-term inflation, according to a Bloomberg Report.
Ms. George, 55, is known for going against the grain in Federal Reserve meetings, having already casted three out of three dissenting votes at the Federal Open Market Committee this year. She voted against FOMC decisions to continue purchasing $40 billion in mortgage-backed securities and $45 billion in Treasuries ever month.
Wall Street Journal calls her the “de facto standard bearer for anyone inside and outside of the Fed who is uncomfortable with the institution’s ongoing and aggressive attempt to pressure growth higher and lower the unemployment rate.”
Ms. George spoke today at the Wyoming Business Alliance in Jackson, Wyoming, where she said that a strong housing recovery is “counteracting” the effects of a fiscal spending contraction, which will inhibit growth in the second and third quarters.
“The employment picture is getting better,” and Ms. George said that it is a good sign that the monthly payroll growth is averaging 200,000.
George believes that the transition out of quantitative easing will lead to complications, including an increase in longer-term inflation expectations and a “painful adjustment” when the benchmark interest rate is raised.
“Low interest rates prompt investors to ‘reach for yield,’ which may make them ‘particularly vulnerable to the point at which rates must rise,” Bloomberg reported George saying. This could “require a painful adjustment that I worry about.”
The Fed has maintained that they will keep interest rates low until the labor market improves substantially. It will continue buying bonds, keeping its target interest rate near zero, so long as unemployment stays above 6.5 percent and inflation doesn’t exceed 2.5 percent.
The April jobs report suggests that things may be moving in the right direction, however slowly. The unemployment rate decreased to 7.5 percent, and employers added 165,000 workers to payrolls, a bigger figure than analysts predicted. Further, inflation dropped to 1 percent from a year earlier in March. These signs point to the Fed moving closer and closer to their goals of improving the economy, however progress is moving along slowly and they do not expect to stray for their quantitative easing policy for several years.
Topics Related to This Post: