George Dissents Again

Kansas City FRB President Esther George has been the lone voting dissenter at every meeting of the FOMC this year for exactly the same reason, i.e., her concern “that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.” In a 9/26 speech titled, “US Monetary Policy: Risks of Delayed Action,” she strongly criticized the FOMC’s no-taper decision:

I view the data has being sufficiently positive to continue with the plan the Chairman presented in June, which called for the pace of purchases to moderate this year and gradually decline for several months until they come to an end around mid-2014. Consistent with this roadmap, our previous guidance and market expectations, my preferred course of action would have been to begin tapering asset purchases at last week’s meeting.

She then summarized the risks of not tapering:

Delaying action not only allows potential costs to grow, it also has the potential to threaten the credibility and the predictability of future monetary policy actions. Policy moves that surprise the market often result in additional volatility. And by deciding that it needs to await further data, the Committee is suggesting its desire to be ‘data dependent’ involves putting more emphasis on the most recent data points, which can be volatile and subject to revision, rather than on its own medium-term view of the economy. Another risk is that markets might misconstrue the postponement of action as reflecting a Committee assessment that the broader economic outlook is substantially weaker, when that is not the case.