Fed's George backs tapering asset purchases

Fed's George backs tapering asset purchases

The Federal Reserve's next step should be to reduce the size of its asset-purchase program, said Esther George, president of the Kansas City Fed Bank, on Tuesday. George cancelled her speech to a business group in Santa Fe, N.M. due to illness, but released her prepared remarks to the media. "History suggests that waiting too long to acknowledge the economy's progress and prepare markets for more-normal policy settings carries no less risk than tightening too soon," George said. George said several sectors of the economy "are becoming increasingly dependent" on the Fed's current easy policy stance. For instance, she noted that debit balances in security margin accounts at broker-dealers hit an all-time high in April. She also said that investors are getting more aggressive in seeking our riskier assets in the leveraged loan market. George has been a critic of the Fed's $85 billion-per-month asset purchase program, voting against it in every policy meeting so far this year.

• Slowing pace of asset purchases would not constitute tightening
• It means less pressure on the gas, not stepping on brake
• Adjust pace of purchases would prepare markets to be less dependent on Fed
• Fed risks inviting asset misallocation by creating ever greater excess reserves in banking system
• Expects 2% growth in 2013, 3% in 2014
• US jobs growth in past 6 months more than enough to keep up with population growth
• Fiscal drag a headwind

We shall see...