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Esther George Now Likely to Push for an Even Faster End to Fed Easing Policy

Jon C. Ogg

Esther George, president of the Kansas City Federal Reserve, is the most vocal voting member of the Federal Reserve's Federal Open Market Committee (FOMC). At each FOMC meeting, she is against the endless easing and low rates, and the endless bond buying. When she gives speeches you can almost bank, on her calling for an end of the Fed's quantitative easing (QE) policies sooner rather than later. We now believe that her regional banking report will allow Esther George to become even more vocal inside the Federal Reserve, regardless of Ben Bernanke's efforts to keep rates low and to keep buying bonds.

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Her regional bank just reported the Kansas City Manufacturing Index, and the index jumped to a reading of 6 in July from -5 in June. That is a solid jump from contraction to expansion, even if the June reading was due to weather. This is also the highest reading since last August. If you take a year-over-year comparison, this index was down one point to 2, but that is still showing growth.

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The reason that we think Esther George likely will become increasinly vocal is that her Fed district is now operating in the black for growth rather than in contraction. Here were some of the growth metrics:

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  • Production was at the best level since June 2011, jumping up to 21 from -17 in June.
  • The shipments index surged back to 19 in July from -16 in June.
  • The new orders index rose to 5 in July, versus -10 in June.
  • And the export orders index rose to 2 from -5.

Not every aspect was rosy here. Employment fell to -2 from -1. The prices paid index rose to 16 from 14, while the prices received fell to 0 from 3. That is not a good trend when businesses have to pay more to make products and receive lower prices in the market. The expectations index remained positive, but that was down to 7 from 12 the prior month.

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Esther George is likely to be happy that there was such a broad snapback, even if some of the key metrics might be weaker than she would like. It always sounded odd for her to be so anti-QE in the meetings when her own district was not doing too well. Imagine how vocal Esther George will be against QE and the endless bond buying of $85 billion per month if her district keeps doing better and better.

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