Former Kansas City Fed President Esther George: A rate hike is 'very much a possibility'

• U.S. consumers hold negative views of the economy, concerned about inflation (high gas prices) and the impact of AI on jobs, despite low unemployment.
• The Fed's past approach of 'looking through' supply shocks (like the pandemic) is seen as a mistake, contributing to current high inflation, with the Iran war-led energy shock adding a 'second-order effect'.
• A rate hike is considered 'very much a possibility' to restore the Fed's credibility in achieving its 2% inflation target, with markets already showing reactions.
• The potential new Fed Chair, Kevin Warsh, is noted for his interest in reducing the Federal Reserve's balance sheet, a complex process that would require careful consideration of market reactions.

Former Kansas City Fed President Esther George discusses negative U.S. consumer sentiment driven by inflation and AI concerns, and the Federal Reserve's challenge in managing inflation. She emphasizes the Fed's need to maintain credibility by achieving its 2% inflation mandate, suggesting further tightening is possible despite current fiscal tailwinds. The discussion also touches on the potential impact of a new Fed Chair, Kevin Warsh, and his interest in reducing the Fed's balance sheet.