Bloomberg News

Fed's George Says U.S. Growth May Not Exceed 2% in 2012

July 16, 2012

Federal Reserve Bank of Kansas City President Esther George said the U.S. economy probably won’t grow much faster than 2 percent this year, held back by caution among consumers and businesses.

The economy “is growing slowly for sure and some may characterize it as growing erratically,” George said today in a speech in Kansas City, Missouri. Growth will be “not much beyond 2 percent” in 2012, with some pickup in following years.

The Federal Open Market Committee voted last month to extend a program swapping short-term securities for long-term bonds in the Fed’s portfolio with the aim of bolstering a slowing U.S. economy and enlivening the job market. The Fed also said it would consider more stimulus if needed.

Policy makers face a “real challenge” in weighing whether more accommodative Fed policy will spur growth in employment, George said.

“We have provided a highly accommodative stance of monetary policy,” said George, who doesn’t have a vote on policy this year. “Will monetary policy put people back to work at this point? That is not clear to me.”

The U.S. recovery over the past three years has been marked by periods of solid growth followed by disappointing slowdowns, she said. “It looks like this summer’s slowdown will be no exception to that.”

Employment Weakness

Retail spending has waned, hurt by weakness in employment, the Kansas City Fed leader said. Businesses have raised their cash holdings and are reluctant to invest in part because of uncertainties including fiscal policy, the European debt crisis and the “regulatory landscape,” she said.

Bright spots have included a surge in U.S. auto sales this year and “long overdue” gains in the housing market, George said.

While inflation has been low, the Kansas City Fed chief said the central bank can’t be complacent.

“We know from past periods that inflation doesn’t give you a lot of advance notice,” she said. “You don’t want inflation to get ahead of you.”

Just 80,000 U.S. jobs were added in June and the jobless rate remained at 8.2 percent, the U.S. Labor Department reported July 6. Growth in private payrolls was the weakest in 10 months. The figures underscore concern among some Fed policy makers that growth isn’t fast enough to lower unemployment stuck above 8 percent since February 2009.

George was the Kansas City Fed’s No. 2 official under Thomas Hoenig, who retired last year. She joined the Fed in 1982, spent much of her career in bank supervision and became first vice president in 2009. The Kansas City district represents Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and the western third of Missouri.

To contact the reporters on this story: Steve Matthews in Atlanta at

To contact the editor responsible for this story: Christopher Wellisz in Washington at

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