Esther George was president of the Kansas City Federal Reserve Bank from 2011 to 2023, years that spanned the time when the Fed had to help dig the economy out of the aftermath of the Great Financial Crisis all way through the Pandemic. She is well aware of the challenges not only of navigating the monetary policy through tough economic times but also communicating to markets, businesses, households what the Fed is doing and where it is heading.
There were no policy surprises coming out the Fed’s meeting today . It held its key rate unchanged as expected. The big question going into the meeting was what the FOMC - the policymaking Federal Open Market Committee - would signal about future policy, an especially tricky question when the world is waiting to see exactly what the Trump team does with tariffs, deportations, taxes and more.
The big question coming out of the meeting concerns the meaning of this ostensibly small but possibly important change in the Fed’s tersely worded policy statement. The Fed’s December policy statement said “Inflation has made progress toward the Committee’s 2% objective but remains somewhat elevated.” The latest statement says simply “Inflation remains elevated.”
When asked, Chair Jay Powell said it was simply a move to shorten the sentence and clean up the language. This raised some eyebrows as it is well known that the Fed works hard to select every word in order to craft brief statement that sends that signals its intentions.
Esther says it shows a significant change and along with other comments Powell made and suggests the Fed is concerned that it’s no longer making the progress on inflation it needs to keep cutting rates.
A significant shift in the policy statement 00:01:47:19 - 00:02:21:04T
…the statement today, Kathleen, in a much crisper and cleaner form, I think really in some respects does enhance the communication. The thing I think that caught my attention, as you noted, there was just in that opening paragraph, which is designed to really encapsulate where do we see the economy today. That was a pretty significant change to simply say inflation remains somewhat elevated as opposed to talking about the progress on inflation.
Rate cut pause raises question is Fed seeing enough progress on inflation
00:02:21:06 - 00:03:01:03
And in fact, we know from the December meeting and the minutes we saw from that committee has been very focused on trying to judge have indeed, they've seen the progress they want coming in to this year. And so today's policy hold, if you will, no action on the rate. I think I heard the chairman say a couple of times we can afford to be patient, to wait and see is a signal that they do have their eyes on inflation and the fact that it remains elevated is raising the question about whether they've made the progress they want to see.
Is policy restrictive/ how restrictive? 00:05:59:13 - 00:07:23:17
So I think it was really threading the needle here pretty tightly to not tip one way or the other, not to suggest they were concerned about inflation, but really to focus on the economy's in a good place today and we don't have to move right now. I've had a lot of questions about whether I think the policy is all that restrictive at all… I tend to look at real rates, which is let's take out the inflation rate relative to where the Fed funds rate is sitting, It's not that restrictive. And you really don't see signs in the economy <of it being restrictive…
Fifth year of inflation over target is the Fed feeling the pressure? 00:07:48:13 - 00:08:16:20
But to allow inflation now going into its fifth year above target… I think has the attention of a number of the FOMC members. To say we should not… we should be very clear about the commitment to getting to that 2% target. And I did hear the chairman say today <they intend to get there in> a sustained manner. So that's going to be important, I think, is they're trying to feel their way.
The Fed wants to reassure us that it is determined to hit 2% 00:09:20:04 - 00:09:56:14
I interpret today's meeting as saying because we call today's policy meaningfully restrictive, it suggests that you should not have to worry about the disinflation process stalling. It may take longer, but not stalling and that inflation expectations should continue to remain anchored. I think it is a real question, though, Kathleen, about whether you should really try to guess is your policy restrictive or not, as opposed to having your messaging being we intend to bring that inflation rate to target.
Is it the Fed’s messaging in the wrong place? 00:09:56:16 - 00:10:52:06
…and I think this idea that there is an easing bias, I think comes to too readily in some of this discussion when, for example, someone asked, will you wait until you achieve 2% before you cut? And the answer was quickly, no, no, no. We can we can continue that process as long as we have confidence that the disinflation is underway. And that's probably right. The question is why characterize your policy as meaningfully restrictive until you're able to see the inflation process come down? There are a lot of uncertain days swirling right now for sure with fiscal policy and new administration's policies here.
Powell red-lines talk about administration policy-it’s still important 00:10:52:05 - 00:12:44:06
… you want to characterize the policy: they must keep their eye on that inflation rate. I'm so glad you just mentioned fiscal policy because that is a big question for the Fed Reserve, for the fixed income, the bond markets, for the new administration, everybody. But Chair Powell, very clearly steered away from commenting on anything to do with administration policy. We were not and are not on a good path with fiscal policy. We've seen, for example, the ten year continued to rise in the face of cutting short term rates. So there is an element in here where investors are demanding more. Looking at that fiscal situation today that I think warrants having some discussion, including by a Fed chair, I understand he's not comfortable.
Fiscal risk is there and important; ignoring it will not make it go away 00:12:44:06 - 00:13:11:17
He's not going to wade into that. That's been consistent for this chair. But it is going to be continue to be, I think, such an important element of how the U.S. economy unfolds and its outlook. And right now, I would judge the upside risk to inflation. I don't know that they're roughly balanced relative to the labor market, but they seem clearer that the upside risk are there.
Courting preparedness while eschewing the language of tightening 00:13:59:06 - 00:14:53:00
I think you heard them say we're in a good place. ‘We could we can respond however things emerge.’ < a casual quote/paraphrase…> ‘And when they become clear here, we're in a place we can respond.’ Now, no one said the word ‘hike.’ I think certainly the chairman didn't want that to come out of his mouth, but I think that's why he talked a lot about meaningfully restrictive policy and holding for now where they are so that that sort of is an option on the table that says, well, we'll stay here until we see how things unfold and decide which direction we go. I can understand the Fed chair always - how any Fed chair has to be careful… knowing that everything they say could have a big impact. Right. But in terms of the possibility, it is really extra tough for Jay Powell to say anything about the possibility of raising rates at a time when Donald Trump is now in the White House…
Deportation induced worker scarcity is a real risk 00:16:33:00 - 00:16:58:19
And so even though you don't see it in the data, I guess of all the things that are surfacing as potential risk, this would be the one that I think we really are going to have to pay most attention to, because these <migrants> are largely what has helped us in terms of our growth. We have seen a big influx of foreign born labor here.
US agriculture worries more about tariffs and global markets 00:18:11:06 - 00:18:35:02
So in in my part of the country, corn and soybeans are big commodities. And of course, those depend on global markets and moving that grain in those way. So so these kinds of things interfere with that. They create not only uncertainty but the potential to alter those markets in a way that, you know, raises a lot of questions.
Banks have rolled with punches; are in better shape 00:20:11:04 - 00:20:51:04
…as time has gone on, the economy stayed strong, the rates have moved in a direction that have given them time to adjust their balance sheet. Those unrealized losses are still there. I think the thing banks are really focused on now is the prospect of deregulation. And in what form will that come. So again, that will generate some optimism here and we'll see how that plays out in terms of who heads these regulatory agencies with appointments and how this idea of pulling back on some of the regulation, what form does that take?
Bank regulation could be simplified 00:21:20:08 - 00:21:49:10
I'd love to see some simplicity remaining with a focus on durability. So we need strong, sturdy regulations, but I don't think they have to be quite as complicated and require an engineering degree to get them in place. So I would like to see simplification.
Inflation Expectations Don’t Look Anchored 00:23:08:01 - 00:24:05:09
<Inflation expectations> Yeah, I think this is something we have to keep an eye on and we hear a lot about them being well anchored. But if you're watching both the short term, they're rising. And even at the long end cap lane, they're anchored above 2%. That, I think, is so important because we are in a different time. The psychology of inflation has hit consumers, it's hit businesses. And I think there's not as much resistance to it just yet. If we go a long time with low inflation expectations, but when asset values have been elevated, people have experienced price inflation shock. That I think paints a very different picture about how strongly you feel that inflation expectations are anchored and whether they're anchored at the right level.
So dive in and hear, see what Esther has to say. Her calm, measured statements make powerful, convincing points.
Esther L. George
Esther L. George was president and chief executive officer of the Federal Reserve Bank of Kansas City from October 11, 2011 to January 31, 2023.
George was born in St. Joseph, Missouri, and grew up on her family’s farm in nearby Faucett. She holds a bachelor’s degree in business administration from Missouri Western State University and a master’s in business administration from the University of Missouri-Kansas City. She is also a graduate of the American Bankers Association Stonier Graduate School of Banking and the Stanford University Executive Program.
George joined the Kansas City Fed in 1982 and was appointed to the official staff in 1995. She has held various leadership positions with the Bank, including in the Bank’s research support functions, Public Affairs and Human Resources.
Before being appointed president on October 1, 2011, George had been the Kansas City Fed’s first vice president and chief operating officer since August 2009, where she was responsible for directing the Bank's operations throughout the Tenth Federal Reserve District. Additionally, she has served as the acting director of the Federal Reserve's Division of Banking Supervision and Regulation at the Board of Governors of the Federal Reserve System in Washington, DC.
In January 2009, George was named executive vice president in charge of the Kansas City Fed’s Division of Supervision and Risk Management, a division she led as senior vice president since 2001. In that position, she was responsible for the supervision and regulation of the Tenth District's 170 state-chartered member banks and nearly 1,000 bank and financial holding companies, as well as the Bank's discount window and risk management functions. During her tenure in banking supervision, she was directly involved in the banking supervision and discount window lending activities during the banking crisis of the 1980s and post-9/11. She is a former chair of the Federal Reserve System's Community Banking Organizations Management Group.
Beyond the Tenth Federal Reserve District, George’s experience in international central banking issues includes involvement with the Bank for International Settlement’s Financial Stability Institute programs in Lima, Peru, and Abu Dhabi, United Arab Emirates. She has also served as the Tenth District’s lead officer for international partnership programs involving the central banks of Morocco and Iraq. Additionally, she hosts the Kansas City Fed’s annual economic policy symposium in Jackson Hole, Wyoming, that is attended by central bankers from around the globe.
George retired in January 2023 after reaching the mandatory retirement age for Reserve Bank presidents.
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