Kansas City Federal Reserve calls for Fed rate rise

In light of June’s strong job growth, Kansas City Federal Reserve Bank President Esther George argues for tightening of monetary policy


The US Federal Reserve continues to be divided over the strength of the US economy, with the US labour market sending mixed signals to analysts. Speaking at a labour conference on July 11, Kansas City Federal Reserve Bank President Esther George argued that federal fund rates are “too low”.

George noted that rates were currently “too low given the progress we’ve seen in the economy”, pointing towards the economy being near full employment levels and a visible recovery in the housing sector. Keeping rates too low, she argued, created greater potential risks for financial markets.

As a FOMC member, George has been a regular advocate for raising interest rates, being the sole dissenter on the Fed’s decision to hold rates in January, March and April of 2016. However, at June’s FOMC meeting, she agreed to maintain low interest rates owing to, alongside global economic factors, poor figures in the Bureau of Labour Statistics’ (BLS) May jobs report, in which job growth was shown to have sharply slowed.

George’s most recent comments, however, come on the heels of the BLS’ June jobs report, which showed stronger than expected job growth; something she referred to as “welcome news”. The pick up in employment growth in June, she argued, shows that the US economy is continuing to strengthen.

However, while US employment continued to expand, the Federal Reserve’s Labour Market Conditions Index (LCMI) – released on July 11 – sat at -1.9 points in June. The index, only introduced in 2014, combines 19 labour market indicators including the unemployment rate, average hourly earnings and consumer and business surveys. June’s LCMI figures were slightly better than May’s -3.6 figures, but continue a six consecutive month fall.

The LCMI figures are generally in the positive during a period of expansion, while falling in the negative in a period leading up to a recession. However, according to many economists, the negative figures are more reflective of the US returning to near full employment levels, rather than any renewed weakness in the US economy.