Federal Reserve Chairman Jerome Powell recently voiced uncertainty about the restrictive level of monetary policy and its impact on inflation.

Former Kansas City Fed CEO and President Esther George says more time is needed for interest rate hikes to fully work through the economy before tightening further, as economic activity is still adjusting to post-pandemic conditions.

George notes to Yahoo Finance that “the Federal Reserve does have time to pause here” in order to “gain confidence” that they are moving in the right direction.

Click here to watch the full interview on the Yahoo Finance YouTube page or you can watch this full episode of Yahoo Finance Live here.

Video Transcript

- What we did hear from the Fed Chair last week saying that he's not quite sure that current monetary policy is restrictive enough to bring inflation back down to that 2% target. I've heard you say that you'd be happy to wait a little longer if you were still on the committee. I'm curious what questions you still have.

Related Videos

ESTHER GEORGE: So when I think about the economy right now, we have a lot of rate hikes that are still in the pipeline. And I think we have yet to see those fully work their way through. And remember, at the same time, the economy is adjusting to the imbalances that we've seen coming out of the pandemic.

So the combination of those things suggests to me that as long as the data is coming in, in a fashion that doesn't show the economy re-accelerating, that the Federal Reserve does have time to pause here and to look carefully to confirm the data that they're seeing and to make sure that they are, in fact, progressing toward that 2% target.

So when the chairman says, not yet sure that they're sufficiently restrictive, I think that is an indicator that more time is needed for them to gain confidence that they're headed in the right direction.

- And as-- I mean, even as we look at what we've seen with weekly jobless claims at a three month high, continuing jobless claims rising to the highest in almost two years through these incremental indicators here. But what about some of these factors that are outside of the Fed's Foray here? What are you watching in that space?

ESTHER GEORGE: So the Federal Reserve of course, has a dual mandate. It certainly is keeping its eye on inflation right now, but ensuring that it does so with an eye on the labor markets is also important to them. And of course, the labor market has been quite strong. We have seen people coming back in, the participation rate has improved over time. We're watching the jobless claims begin to inch up, but still very low right now.

And so even as the unemployment rate has ticked up, it is still at a historically low rate. And I think, watching this jobs data is going to be a very critical signal around how the economy is moving. It will be a lagging indicator for sure. But this has been an aspect of the economy during this post-pandemic period that has been particularly tight, has drawn people back in, which is good. But it is one of the signals that generally you watch as demand cools in an economy is how is that translating to employment.