Federal Reserve Bank of Kansas City President Esther George spoke with FOX Business Network’s (FBN) Peter Barnes about her thoughts surrounding the United States economy. George said, that “it is time to begin to adjust” the Federal Reserve’s bond buying. When asked about Quantitative Easing George said, that she believes it is “appropriate” to reduce Quantitative Easing  “sooner” and that this is “because we have a long way to go if we’re going to do this in a gradual and a systematic way, to begin to return the balance sheet, to begin to normalize Monetary Policy.”

Esther George

Excerpts from the report are below.

Esther George On whether it is time to reduce bond buying:

“I think it is time to begin to adjust those purchases.  The labor market has shown now, for the last six months, pretty steady gains of close to 200,000 per month.  That is a good indicator that there has been sustained improvement here and that I think it would be appropriate, given the size of our balance sheet, given the level of accommodation, that we begin to make adjustments that reflect that improvement as we go forward.”

Esther George On when we should expect to see adjustments to Quantitative Easing:

“I think that’s a discussion the committee is going to have to have, about what is the right pace and what is the level of adjustment.  So I’m open to engaging that with my colleagues, about the right pace. But I think sooner is appropriate to begin now, because we have a long way to go if we’re going to do this in a gradual and a systematic way, to begin to return the balance sheet, to begin to normalize Monetary Policy.”

Esther George On the future of Quantitative Easing:

“Quantitative easing has served a role during the course of the crisis, but more recently, the open-ended program has raised questions for me about its cost relative to its benefits. And I think as the economy has continued to recover, even though that’s been slow, we have seen positive trends, both in the labor market and housing and other things.  The discussion about how much longer, when will the outlook for the labor market be sufficient to allow the committee to begin to make adjustments. We’ve come to that point.  And the minutes of the most recent meetings have suggested that, the chairman, in his press conference, have suggested that. And so these signals to the market, after a long period of engaging in this kind of policy, will be a bit confusing, may create communications challenges for us.  But I think beginning that dialogue is important for the market to begin to make that adjustment.”

Esther George On whether it is appropriate to begin tapering soon:

“I’ve been a proponent of doing it faster and sooner.  But I think the important thing is to start the process.  And I think if you’re going to move in a gradual way, you may find yourself into 2014 beginning to adjust those paces – purchases.”

Esther George On whether Federal Reserve Chairman Ben Bernanke is committed to helping the economy move forward:

“Well, the chairman made his comments in the press conference.  The committee will be meeting again in a couple of weeks to talk about the data we’ve seen, to talk about the next steps to policy.  And so that is a decision that is made collectively by the committee.  And you can expect that as we talk about it, there will be diversity of views at that table. But the outcomes, I think, will continue to be data driven, continue to be supported by what we see unfolding in the economy.”

Esther George On raising the Federal Funds Rates:

“Well, I have, over the past year, expressed some of my concerns about being at zero interest rates for a long time and the potential for distortions. The committee has been clear, I think, in its communication with its thresholds that it will be waiting to see an unemployment rate in the neighborhood of 6.5 percent, assuming that inflation doesn’t get beyond 2.5 percent before it makes judgments about that short-term interest rate. So when you look at forecasts for that, that again, will be a function of how quickly the economy responds.  But that could be some time after the end of asset purchases.”