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5/9/2017, 6:19 PM (Source: TeleTrader)
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Fed's George: Little or no slack in labor market

Despite weakness in the first quarter, the United States economy is continuing to expand on "sustained job growth and solid gains in household spending," while external risks declined, according to Esther George, the head of the Federal Reserve's subsidiary in Kansas City. Speaking in California on Tuesday, she once again expressed support for the gradual tightening of policy as the labor market strengthens, attributing the slip in expansion to a mild winter, the "residual seasonality" for the beginning of the year, and imperfections in methodology.

The average 2% economic growth is weak but that the streak of 94 straight months above the flat line is the third-longest since the middle of the nineteenth century, the central banker noted. She also pointed out labor market activity and momentum are both above historical averages and continuing to indicate tightening. The overall sector is "showing little or no slack," she stressed and added inflation is near target. This year George is a non-voting member of the Federal Open Market Committee. 

The hawkish head of the central bank's subsidiary in Kansas warned against moving "too gradually," stressing the risks to stability in the long run. She also said the Fed's securities holdings must be adjusted in size and composition. "My own view is that the process should begin sometime this year by reducing reinvestments in mortgage-backed securities (MBS) and long-term Treasury securities. Once it begins, however, the runoff in the portfolio should be on autopilot and not reconsidered at each subsequent FOMC meeting," George stated.

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