Fed should raise rates when taper complete, official says

by Ryan Smith04 Jun 2014
A Federal Reserve official official says she wants to raise interest rates as soon as the Fed finishes tapering its bond buys.

Speaking at an event in Breckenridge, Ohio, Kansas City Fed President Esther George said that given recent economic growth, “it will likely be appropriate to raise the federal finds rate somewhat sooner and at a faster pace.”

The Fed has kept interest rates near zero since 2008. Most Fed officials think those low rates will be in place until some time in 2015, the Wall Street Journal reported. George, however, thinks the Fed should consider raising rates as soon as its bond-buying stimulus comes to a close.

The bond-buying plan, called quantitative easing, began to wind down in December. At its height, the program helped push mortgage rates to near-record lows.

Currently, the Fed is purchasing $45 billion per month in Treasury and mortgage bonds, according to the Journal. it will likely wind down the taper completely late this year. At that point, George said, the agency should consider normalizing monetary policy.

“My concern is that keeping rates very low into late 2016 will continue to incentivize financial markets and investors to reach for yield in an economy operating at full capacity, posing risks to achieving sustainable growth over the longer run,” she said.
 

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