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Low inflation? Nothing to worry about, says the Fed's George



DENVER (Reuters) – Kansas City Federal Reserve Bank President Esther George on Sunday rejected the idea that the US central bank should cut interest rates to try to raise inflation, which she said is largely a result of global forces such as US monetary policy can do little to counteract.

Kansas City Federal Reserve Bank President Esther George addresses the National Association for Business Economics in Denver, Colorado, October 6, 2019. REUTERS / Ann Saphir

"Under current circumstances, concern about low inflation seems unnecessary," George told the National Association for Business Economics in Denver. "The US economy is currently in a good place, with low inflation, low unemployment and prospects for continued moderate growth."

Fed leader Jerome Powell has repeatedly described the economy as "in a good place," but unlike George has supported reductions in US interest rates as an insurance policy against the effects of slow global growth and rising trade uncertainty as the United States ramps up customs duties on Chinese imports.

George, on the other hand, dissented over both Fed rates cuts this year, in July and September. The Fed is currently aiming for short-term interest rates in the range of 1.75% to 2.00%, a setting that, by most Fed politician estimates, should help boost growth.

"If I saw the consumer lose confidence, and it could happen, I might think again," George told the group, adding that consumer spending has mostly been strong. "I am thinking of this latest round of tariffs that will greatly affect the consumer and to what extent it can cause a reaction."

But unless there is a broader economic impact, "dampened inflation would not warrant a political response," she said.

Indeed, she suggested, inflation could fall well below the Fed's 2% target, and she may remain unknown.

"I think it is more realistic to accept that there will be both temporary and sustained fluctuations around this long-term goal, and as long as they do not exceed a reasonable threshold – perhaps as large as 50 or even 100 basis points. – They should be tolerated, depending on broader economic conditions, "she said.

This view is contrary to the concerns expressed by much of the Fed management over several years of missing the central bank's inflation target of 2%.

The Fed, as the next meeting October 29-30, much is expected to lower prices at least once again this year. George said that although each meeting is a chance to re-evaluate her attitude, she made it clear that she is not committed to that plan.

" Should incoming data point to a generally weaker economy, it may be appropriate to adjust policies to achieve the Federal Reserve's mandates for maximum sustainable employment and stable prices, "George said. But" to try to quickly bring in inflation the ion return to 2 percent by adjusting the interest rate may require aggressive actions that will divide resources and create economic imbalances. "

Reporting by Ann Saphir; Editing Dan Grebler

Our Standards: Thomson Reuters Trust Principles.

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