Kansas City Fed: Rate Hike Should be “On the Table” March

Esther George, President and CEO of the Kansas City Fed and a member of the FOMC

Although economic conditions such as employment and inflation are not ideal, Kansas City Federal Reserve Bank President Esther George is pushing for the central bank to make one of those four increases the industry has been waiting on in March at the next Federal Open Market Committee (FOMC) meeting.

The Federal Reserve made the long-awaited, much-anticipated announcement in December that federal funds target rate will increase by a quarter of a percentage point from its near-zero level where it has been since 2006. The federal funds rate is now one-fourth to one-half percent, according to the FOMC.

"This action marks the end of an extraordinary seven-year period during which the federal funds rate was held near zero to support the recovery of the economy from the worst financial crisis and recession since the Great Depression," said Fed Chair Janet Yellen. "It also recognizes the considerable progress that has been made toward restoring jobs, raising incomes, and easing the economic hardship of millions of Americans. And it reflects the Committee’s confidence that the economy will continue to strengthen. The economic recovery has clearly come a long way, although it is not yet complete."

There has been much talk about the upcoming March FOMC meeting and whether or not the Fed will raise rates after leaving them unchanged in January. "It absolutely should be on the table for consideration," George told Bloomberg Radio on Tuesday.

In her recent testimony before the House Financial Services Committee when discussing monetary policy, Yellen pointed out factors that have weighed on aggregate demand, such as limited access to credit for some borrowers, weak growth abroad, and the dollar’s significant appreciation. Inflation also remains way below the Fed’s 2 percent objective. Persistent economic headwinds have kept the federal funds target rate at a historically low level may mean that future rate hikes may occur even more gradually than originally anticipated.

“The FOMC anticipates that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate,” Yellen said. “In addition, the Committee expects that the federal funds rate is likely to remain, for some time, below the levels that are expected to prevail in the longer run. This expectation is consistent with the view that the neutral nominal federal funds rate—defined as the value of the federal funds rate that would be neither expansionary nor contractionary if the economy was operating near potential—is currently low by historical standards and is likely to rise only gradually over time.”