Fed President Esther George: Yield Curve Inversion Is Our Fault

First On CNBC: CNBC Excerpts: Kansas City Fed President Esther George Speaks with CNBC’s Steve Liesman from Fed Summit in Jackson Hole, WY in Interview Airing Today

Kansas City Fed President Esther George

Image Source: CNBC Video Screenshot

WHEN: Interview Aired Today, Thursday, August 22, 2019

WHERE: CNBC’s “Squawk Box” – Live from the Fed Summit in Jackson Hole, Wyoming

The following is the unofficial transcript of excerpts from a FIRST ON CNBC interview with Kansas City Fed President Esther George and CNBC’s Steve Liesman on CNBC’s “Squawk Box” (M-F 6AM – 9AM) today, Thursday, August 22nd, live from the Fed Summit in Jackson Hole, Wyoming. The following are links to clips of the interview on CNBC.com:

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Kansas City Fed President Esther George: The July rate cut was not needed

Esther George: The Fed may be partly responsible for the yield curve inversion

All references must be sourced to CNBC.

BECKY QUICK: And let’s head straight to Steve Liesman. He joins us with highlights of his interview with Esther George. And Steve, it’s great to see you this morning. We have missed you. We know there is a lot of big news coming out of there.

STEVE LIESMAN: We’ve got a lot of news. We have a lot of great interviews coming up – we’ll talk about those in just a little bit. We got a chance yesterday to sit down With Kansas City Fed President Esther George. She’s the host at this meeting and every year. And we talked about whether or not she regretted – remember, she dissented at the last meeting. I asked her whether or not she regretted dissenting and not voting for the cut. And then of course, we talked about where she though rates ought to go from here.

ESTHER GEORGE: My sense was we’ve added accommodation and it wasn’t required in my view. So, i’m observing the downside risk. And right now, I’m really focused on what the federal reserve has to do to achieve its mandates. And in my view with this very low unemployment rate, with wages rising, with the inflation rate staying close to the Fed’s target, I think we’re in a good place relative to the mandates that we are asked to achieve.

STEVE LIESMAN: How is the economy performing relative to your forecast right now?

ESTHER GEORGE: Last year was a stronger performance. And I thought 2019 would not be as strong. But still coming in around 2%. So, for my outlook, I think 2% growth still looks possible for the U.S.

STEVE LIESMAN: Is our risk tilted to the downside, in your opinion?

ESTHER GEORGE: I think they are tilted to the downside. And I thought that for some time as you look at global growth weakening. And as you look at the amount of uncertainty associated with some of these trade issues. I think both of those are weighing on the outlook. Whether they begin to spill over in a way that we see the effects on the real economy is what I’m watching for.

STEVE LIESMAN: What is your outlook for trade? Is it an issue for uncertainty years to come, months to come? Do you have hope it is resolved soon?

ESTHER GEORGE: It does seem persistent at this stage. and it’s hard to see how it will be resolved. So, you have to take that as it comes in terms of watching for data, it signals it’s having an effect on the economy.

STEVE LIESMAN: Have you seen it yet?

ESTHER GEORGE: I think you probably see it in business investment. We hear that from our own business contacts, which are trying to think about what the implications are for their particular business. It may cause them to pull back on some of their investments. So, I think we are beginning to see some of those effects there.

STEVE LIESMAN: Your district is very heavy in agriculture and farming.

ESTHER GEORGE: So, the AG community in my region has experienced low farm incomes for a number of years now, going on five years now, well ahead of these trade issues. Having markets disrupted, particularly for example in the soy bean production area has been another leg down for the AG sector. And so, this puts pressure on an already difficult situation.

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ANDREW ROSS SORKIN: Right now want to get back to Jackson Hole, Wyoming. Fed leaders and Central Bankers from around the world gathering this week to talk monetary policy in the mountain town after we first heard from the host Kansas City Fed President Esther George last hour. Bond yields ticked up. George said the latest Fed cut wasn’t required. Steve Liesman now joins with us more. Steve.

STEVE LIESMAN: Yeah, Andrew. And I think we’re going to be listening to a whole bunch of Fed speakers here to see, are they in-tune to where the markets is calling for rate cuts? Esther George clearly not. Here’s the second part of the interview where I began talking to her about two things. One is: why are U.S. interest rates higher than the rest in the world? And, second, what does she think of the 16 trillion dollars of negative interest rates around the world?

ESTHER GEORGE: It’s incredible, I think. It is part of, I think, an experiment that we’re watching to see whether negative interest rates will have the stimulative effect that Central Banks are looking for.

STEVE LIESMAN: Could the United States have negative interest rates?

ESTHER GEORGE: I would never say never. I don’t see it for the U.S. right now. Remember, we already have real interest rates at 0 right now. If you think about where inflation is and where the current Federal funds rate is. So, policy is not tight in my view in the United States. And I think as the economy grows, I don’t see a scenario for that right now.

STEVE LIESMAN: What kind of signal are you getting from the yield curve being flat and briefly having inverted on the 210?

ESTHER GEORGE: So, we all know what the history is of inverted yield curves and the concern that they portend a recession coming. I think, I look at that very carefully to try to understand why are we seeing that? But in the context of a global economy that is weakening, I think that could be explaining a part of it. I think the Fed still has a large balance sheet and that could be putting some downward pressure on the lower term rates. So, I’ll keep watching that carefully for sure. But, I don’t yet see the signal that suggests it’s time to get worried about a downturn.

STEVE LIESMAN: Why are United States interest rates so much higher than Europe where they’re zero?

ESTHER GEORGE: I think if you look at the underlying performance of those other economies, you will see the U.S. Is performing better than, for example, Europe and other parts of the world. And that accounts for why we have higher interest rates.

STEVE LIESMAN: Do you worry that we’re too far above other major developed countries?

ESTHER GEORGE: I don’t tend to think of it this way. I tend to think that those rates in the U.S. are reflecting the underlying economy here, the interest rates in other countries likewise are reflecting that. And to address that issue really requires other policies in those countries, whether it’s fiscal or monetary, to really affect that growth.



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Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver