By Steven K. Beckner

KANSAS CITY (MNI) – New Kansas City Federal Reserve Bank President
Esther George indicated Tuesday that she would not readily support
additional monetary stimulus measures.

George, answering questions following her first public speech since
succeeding Thomas Hoenig last Oct. 1, said it would be risky to try to
speed a recovery that is being slowed by an ongoing processs of
“deleveraging” from the huge debt build-up that led to the financial
crisis.

She didn’t totally rule out further monetary easing, however,
saying that the the Fed’s policymaking Federal Open Market Committee
will have to assess incoming data and make a judgment on that.

“My view is that the economy is going through a deleveraging
process,” George said, adding “that takes time.”

“Efforts to speed up that process runs some risks,” she continued.

What’s more, in looking at “the nature of unemployment,” she said
there are “a couple of components,” including “more business demand.”

“It’s going to take more than interest rates to stimulate the
economy,” she went on. “The actions we’ve taken will have some time to
play out as it is.”

So, she concluded, “we’ll have to see how the data continue to
come in and make a decision whether any further action is appropriate.”

Earlier, in prepared remarks, George had suggested she will want to
proceed very cautiously in considering doing more to stimulate the
economy on top of the extraordianry actions the Fed has already taken to
slash both short and long-term interest rates.

“Policy choices that attempt to speed improvement in the housing
and labor markets can be attractive given these circumstances,” she
said. “But this desire must be traded off against the need to foster
long-term stability within our financial sector.”

“While appropriate risk-taking is fundamental to banking and
desirable in this environment, creating conditions that encourage the
financial system to take on mispriced risk could lead to distortions
that will only haunt us later,” she warned.

“I view monetary policy as attempting to walk a fine line,” she
said. “On the one hand, today’s policy settings are designed to
encourage risk-taking and to stimulate much-needed growth across our
economy. But on the other hand, experience has shown that pushing
risktaking too far can cause the mispricing of risk, the misallocation
of capital and the ultimate weakening of financial firms’ balance
sheets.”

The former bank examiner, who served as acting director of the
Fed’s division of bank supervision, expressed “doubt” that the
Dodd-Frank Act will prevent the next boom and bust. And she said it will
be “months if not years” before international regulators come to grips
with the “too big to fail” problem.

In other comments, George said the FOMC’s decision in December to
start including federal funds rate forecasts in its quarterly summary of
economic projections is designed “to make the Federal Reserve more
traqnsparent and more accountable.”

“My hope is that it will be helpful,” she added.

George said she is less concerned about a European recession than
she is about the potential “financial contagion” from the bedraggled
euro-zone.

She called the mounting U.S. debt “unsustainable.” She said the
U.S. is weathering that problem for now thanks to the dollar’s status as
the world’s leading reserve currency, which has helped keep borrowing
rates low. But she said “now is the time” to start dealing with the
debt.

** Market News International **

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