Fed’s George Sees ‘Difficult’ Policy Messaging to Balance Inflation, Jobs

Kansas City Federal Reserve Bank President Esther George said officials have a tough road ahead in determining policy as they try to balance inflation and employment.

(Bloomberg) — Kansas City Federal Reserve Bank President Esther George said officials have a tough road ahead in determining policy as they try to balance inflation and employment.

“Policymakers will undoubtedly face more complicated choices and difficult communications as the tradeoffs between inflation and employment become more apparent,” George said Friday in prepared remarks for an event at the Kansas City Fed.

“Uncertainty around the path of policy could rise once the public and markets start evaluating how the Federal Reserve is weighing inflation relative to a softening labor market in its policy decisions,” she said.

The US added more jobs than expected in December and the unemployment rate dropped to 3.5%, data out earlier Friday showed. At the same time, wage growth slowed, which supports the odds for a “soft landing,” in which the Fed manages to cool inflation while minimizing pain to the labor market.

Read more: Fed Gets ‘Goldilocks’ Report: Slower Wage Growth, Solid Hiring

Fed officials raised interest rates by a half-point in December, bringing the target on their benchmark rate to a range of 4.25% to 4.5%. The move extended the central bank’s most aggressive tightening campaign since the 1980s and followed four larger hikes of 75 basis points.

Policymakers say their next rate move for the Jan. 31- Feb. 1 meeting will be determined by economic data, including inflation and employment reports. Atlanta Fed President Raphael Bostic said earlier on Friday that he’s open to either a 25 basis-point move or a 50 basis-point increase at that meeting.

Read more : Fed Officials Call for More Hikes Even as Price Pressures Cool

George reiterated her view that household savings could require the central bank to raise rates further if those cash piles are used to boost spending. 

She also said an “unsettled” global outlook, muddied by disruptions in European energy markets and ongoing health challenges in China, could make it more difficult for the Fed to set policy. 

“Overall, the global outlook does not suggest much of a buffer for the US economy if growth were to slow appreciably more here,” she said.

George, who’s led the Kansas City Fed since October 2011, will retire this month in accordance with mandatory retirement rules for Fed reserve bank presidents.

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