Fed's Esther George: Interest rates should go higher, but gradually

Kansas City Federal Reserve President Esther George, a voting member on the central bank's policymaking panel, told CNBC it's time to increase interest rates.

In the interview that aired on Thursday, George said any tightening should be gradual. "I do think it is time to move that rate. It doesn't mean I favor high rates. It doesn't mean I think it needs to happen rapidly."

The Fed has not acted yet, according to George, because some recent economic data have given policymakers pause.

"But under conditions when we're seeing employment move [higher with] low and stable inflation, I think it's fair to say we could remove some of that accommodation," she said.

Other Fed officials have recently voiced similar positions, raising the possibility of a rate hike at the Fed's Sept. 20-21 meeting. The central bank last increased rates in December, the first such move in more than nine years.

George acknowledged that the economy did slow in the first half of the year. But she believes a stronger second half could still deliver a 2 percent growth rate for 2016. Second-half growth could hit 3 percent, barring unforeseen events, she added.

The recent jobs numbers show Americans are coming back to work, George said. "We're beginning to see wage growth in a way that suggests that the consumer is going to be in a good position to spend," she said.

George said she was concerned about valuations in some markets, including commercial real estate and the oil sector.

As for concerns about the presidential election influencing the Fed, George said policymakers should remain focused on the "real economy,[which] is the job of an independent central bank."

Fed officials were meeting this week at the Jackson Hole Economic Symposium, which is sponsored by the Kansas City Fed.

As Fed Chair Janet Yellen gets ready to address the conference on Friday, former Fed Governor Kevin Warsh is taking the central bank to task, in a Wall Street Journal op-ed.

The Fed needs a new way of thinking, he wrote, arguing its models are unreliable and policies are erratic.

Responding to such criticism, George told CNBC: "It's been a long time since we've used convention monetary policy in a way the public understands.

"Of course, we have a framework focused on the Fed funds rate and the short-end of the [bond yield] curve," she added.

Echoing Warsh, the latest CNBC Fed Survey of economists, fund managers and strategists found 60 percent of respondents feel the central bank lacks a framework for deciding on rate moves, with just 24 percent saying they do and 16 percent unsure.

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