Fed’s George: Current inflation surge not yet embedded in the economy

Kansas City Fed President Esther George said in an interview with the WSJ on Wednesday that the current surge in inflation is different from what former Fed Chair Paul Volcker (served between 1975-1979) faced and has not yet become embedded in the economy. the path to policy normalisation is likely to be a long one, George continued, adding that the Fed’s neutral rate is likely around 2.5%, though much is in flux. 

The prospect of yield curve inversion should be considered in the Fed’s balance sheet discussion, George continued, adding that the Fed’s holdings should fall significantly, thus allowing long-term rates to climb. Yield curve inversions have implications for financial stability, she noted, and rolling off Fed assets could help steepen the curve. The policy rate will rise in a steady and deliberate manner, she added, before concluding that the US economy is performing well.