The U.S. economy is improving, and now is the time for the Federal Reserve to start weaning the economy back off stimulus, according to one central bank policymaker.
"In my view, we are on a steady and sustainable growth path," said Kansas City Fed President Esther George at a conference on Tuesday. George pointed to improvement in the job market and housing sector as reasons why the U.S. economy requires no further bond-buying from the Fed.
George hasn't been afraid to disagree with her colleagues on the Federal Open Market Committee, who set Fed policy. She has dissented at every central bank meeting this year, urging her colleagues to slowly back away from their current bond-buying policy.
"I would like to see the FOMC systematically reduce the pace of purchases, in a manner that would bring the program to an end in the first half of next year," she said.
The Fed is currently engaged in a policy known as quantitative easing, or QE3, in which it buys $85 billion U.S. a month in Treasuries and mortgage-backed securities. Buying these bonds is intended to lower long-term interest rates, and thereby stimulate the economy above-and-beyond the low short-term interest rates set by the Fed in December 2008.
To back up her view, George cited her colleagues' own forecasts, which have recently become more optimistic. Last September, Fed officials projected the unemployment rate would fall to 7.75% by the end of 2013.
But as of the June meeting, they now believe it will fall to around 7.25% by that time. (It was 7.6% as of June.)
"Projections of FOMC members suggest that there's more confidence, on average, about improvement for the labour market," George said, adding that throughout history, the Fed has often been overly pessimistic about the unemployment rate.
George nodded to increased volatility in interest rates as an inevitable consequence, as the Fed starts tapering QE3, but also said she believes the "economy is positioned to benefit from higher long-term interest rates."
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