The Federal Reserve should stick to its plans to continue to raise short-term interest rates despite the economy’s recent “fits and starts,” said Kansas City Fed President Esther George on Tuesday.
“The economy has these fits and starts and we’ve seen this over the last five years,” George said in an interview with Bloomberg Television.
The first quarter does “looks soft” but the Fed should not start “over-interpreting what it means for the longer-term,” George said.
“For the year as a whole, I still see consumer spending in a way that should carry the economy forward,” she said.
Earlier, in a speech to a conference at the Levy Economics Institute of Bard College, George said the economy was on “solid footing.”
“There is a sense that outcomes could actually be better than expected rather than worse,” she said.
George is one of the most hawkish Fed regional bank president. She is not a voting member this year.
The Fed has penciled in three rate hikes for the year but the market is starting to have doubts given the weak growth rate in the first quarter. Macroeconomic Advisers said they expect first-quarter GDP growth to decelerate to a 0.6% annual rate in the first quarter, down from a 2.1% rate in the fourth quarter.
Investors now see only one more rate hike this year, according to the CME Group’s FedWatch tool.
In the interview, George would not predict how many more times the Fed would raise rates this year.
“I’m looking to continue the process of normalization. I think the strategy of going gradual has been one I’ve supported,” she said.
The Kansas City Fed President said she hopes the Fed should start to shrink its balance sheet this year.
The Fed should move cautiously, because “I think there will be costs,” she said.
“This is something we can’t look to history to really tell us how its worked in the past,” George said.