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Fed's Esther George warns that inflation might rise sooner than anticipated

Esther George, President and CEO of Kansas City Reserve Bank, during the annual Jackson Hole Symposium in Wyoming on August 23, 2019.

Gerard Miller | CNBC

Long dormant inflation could rebound faster than expected as the economy shakes off the effects of the coronavirus pandemic, Esther George, president of the U.S. Federal Reserve of Kansas City, said Tuesday.

Current measures show that inflation remains largely subdued, as it has since the 2008 financial crisis.

However, George noted that the Fed's preferred inflation indicator is weighed down by some of the sectors that were hardest hit during the Covid-19 crisis. This means that it may not accurately represent the actual state of inflation, which could rise rapidly once the virus is under control and some industries, particularly services and hospitality, recover.

"In contrast to these sectors, price inflation is for many other consumer categories (in particular
Goods) has risen, sometimes quite sharply, "said George in prepared remarks." Such a scenario does not suggest that higher inflation is a short-term threat, but rather that inflation may approach the Committee's average inflation target faster than some anticipate. "

"As a post-vaccination recovery boosts demand and prices in these sectors, including airfare and hotel accommodation, inflation could rise rapidly," she added.

George has long been considered one of the more hawkish members of the Federal Open Market Committee, which means that in the past she has challenged the central bank's highly accommodative monetary policy.

However, what she said came amid a spike in long-term government bond yields, which may indicate some market concerns about inflation. She also spoke a day after Raphael Bostic, president of the Atlanta Federal Reserve, said there may be a need to raise rates by mid-2022, according to the FOMC consensus.

George did not express an opinion on the political implications their inflation comments might have.

"Overall, monetary policy can be expected to remain accommodative for some time," she said. "It is too early to speculate when this attitude will change."

The Fed is currently keeping its short-term benchmark interest rate close to zero and buying bonds worth $ 120 billion. At its December meeting, she said these measures would remain in place until substantial progress was made in meeting the Fed's inflation and employment targets.

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