(Source: By Ray Scherer, St. Joseph News-Press, Mo.) - The economy may experience a small percentage of growth this year, but certain issues could hamper a recovery.
That was a central theme Tuesday from Esther George, president and chief executive officer of the Federal Reserve Bank of Kansas City. She was the keynote speaker at the annual meeting of Midwest Small Business Finance — an area business loan organization — at Harrah’s North Kansas City Casino Hotel.
Ms. George, a Faucett native and business administration graduate of Missouri Western State University, was appointed to the positions last year. Her responsibility covers five states and parts of two others, helping manage the nation’s system of money and credit.
She succeeded Thomas Hoenig following a six-month search. Mr. Hoenig, who attended Benedictine College in Atchison, is awaiting Senate confirmation to become vice chairman of the Federal Deposit Insurance Corporation.
Ms. George’s address offered opinions on the immediate future of the U.S. economy, based on her work formed during 30 years in the Federal Reserve, primarily in financial oversight and lending.
“It is through that lens that I have seen the real economy,” Ms. George said.
She said the economy can grow in 2012. But jobs, slow growth globally and tensions in the Middle East will be among challenges to achieving that stability.
“I expect that we’ll continue to see growth at 2 1/2 to 3 percent,” she told about 125 people gathered for an MSBF luncheon.
Consumer spending will also grow and business investment should strengthen, she added.
“They are beginning to build their productive capacity,” Ms. George said of businesses. “This is especially true for the small business community.”
Yet one flash point could turn out to be a lack of willingness to hire new employees. Taxes, regulations and access to credit may also thwart business ambitions.
“They are concerned about uncertainty,” she said. “That growth is yet to come through.”
On another front, Congress will quickly need to resolve fiscal deficits. Debt has moved to 70 percent of the nation’s gross domestic product.
As a current alternate member of the system’s Federal Open Market Committee, Ms. George holds partial responsibility for setting the future course of interest rates. She told the small business group that she foresees the committee retaining the current rate at near zero percent at least until 2014.
“The challenge for us is the cost benefit” of leaving interest rates alone, she said.
The policy choice of keeping interest rates very low is done with the best intentions for the economy, according to Ms. George. One potential trade-off would be whether the rates will trigger high inflation.
“Inflation appears to be under control,” Ms. George said. “That can change at any moment. I think zero interest rates is a crisis policy rate.”
Another area of concern is the status of farmland values, which have been soaring to unprecedented levels.
“I have many people asking me, ‘Is this a bubble?’” she said. “Only time will tell.”
Several audience questions touched on the Federal Reserve’s role in fixing the national monetary policy.
“The private sector is strong when small business and banks are allowed to take risks,” she said.
The banking industry may witness more consolidation, she said in answer to another question.
“We’re now at another inflection point,” Ms. George said. “I expect we’ll see some degree of consolidation.”
Revised laws are still needed to defeat the notion that banks are too big to fail, she said. “It’s still a big issue and one that we need to keep in front of us,” she added.
For the first time, the heads of the Federal Reserve’s 12 regional banks have released financial disclosure data. Ms. George disclosed that her most expensive asset was half ownership of a Buchanan County farm estimated at $250,000 to $500,000. All 12 Federal Reserve regional bank presidents earn a salary set by their respective boards, ranging from a low of $281,000 to a high of more than $410,000.
Ray Scherer can be reached at ray.scherer@newspressnow.com. Follow him on Twitter: @SJNPScherer. The Associated Press contributed to this story.
___
�2012 the St. Joseph News-Press (St. Joseph, Mo.)
Visit the St. Joseph News-Press (St. Joseph, Mo.) at www.newspressnow.com/index.html
Distributed by MCT Information Services
