NEW YORK, March 27 (Reuters) - The U.S. economy faces “notable” risks and the Fed can take a wait-and-see approach to monetary policy, Kansas City Federal Reserve Bank President Esther George said on Wednesday.
“Over the medium term, I see the biggest risk coming from slower growth abroad, particularly in China, the euro area, and the United Kingdom,” George said in prepared remarks at an event in New York.
George said the U.S. economy’s fundamentals still appeared sound and that job growth would likely rebound from a weak performance in February.
“Downside risks are notable however as my outlook calls for growth to slow to trend, with moderating job gains and low inflation,” she said. “In these circumstances, monetary policy can take a wait-and-see approach.”
George said she supported the Fed’s plans to conduct a review of monetary policy strategy this year. She said some proposed changes to its framework had merits, including proposals for the Fed to commit to making up for years of below-target inflation.
At the same time, she listed a number of reasons why such a framework might not work or could even do harm to the economy.
“I see both fundamental and practical issues to grapple with in moving to such regimes,” George said.
However, George said it might be reasonable for the Fed to allow “even somewhat persistent” deviations from its 2 percent inflation target.
“If they are limited to, say 50 basis points above or below the objective (they) may be acceptable, depending on broader economic conditions,” George said. (Reporting by Jason Lange; editing by Diane Craft)