KANSAS CITY–Credit unions that continue to expand into member business lending, especially loans for commercial properties, will want to be cautious of a potential asset bubble, according to one Fed president.
Kansas City Fed President Esther George said such an asset bubble “bears watching,” and further said it is an indicator the Federal Reserve should “stay the course” and gradually raise interest rates.
“In the long run, a failure to keep interest-rate policy in line with improving fundamentals can distort the allocation of capital toward less fruitful — or perhaps excessively risky — endeavors,” George told an economic forum in York, Neb.
“My concern for some time has been that extending monetary policy too far beyond its scope of capability risks undesirable financial, economic and political distortions,” said George, who cited prior bubbles in the stock market, housing, and most recently, commodity prices.
George is a voting member of the Fed policy committee this year who was the lone person to dissent from the committee’s decision in March to not increase interest rates.
“I believe monetary policy should respond to these developments by slowly removing accommodation, despite what appears to be a more vulnerable global economy, and a domestic economy that appears to be slowing in the first quarter and is threatened by markets that are anxious, uncertain and volatile,’ George told the meeting.