Kansas City Fed President Esther George said yesterday, “it is clear that removing accommodation is required. How much and how aggressively accommodation should be removed is far more uncertain.”
“Given the state of the economy, with inflation at a 40-year high and the unemployment rate near record lows, moving expeditiously to a neutral stance of policy is appropriate,” she added.
“At the same time, the factors I noted earlier, including monitoring risks, the responsiveness of activity to interest rate changes, and yield curve developments will be important guides to that pace in my view.”
On the topic of yield curve inversion, George said, “An inverted curve has implications for financial stability with incentives for reach-for-yield behavior. An inverted yield curve also pressures traditional bank lending models that rely on net interest margins, or the spread between borrowing short and lending long. Community banks in particular rely on net interest margins to maintain their profitability.”
