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CNBC Excerpts: Federal Reserve Bank of Kansas City President Esther George Speaks with CNBC’s Steve Liesman

WHEN: Today, Thursday, August 27th

WHERE: CNBC's "Squawk Box"

Following are excerpts from the unofficial transcript of a CNBC interview with Federal Reserve Bank of Kansas City President Esther George with CNBC's Steve Liesman. Following are links to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000411940 and http://video.cnbc.com/gallery/?video=3000411953.

All references must be sourced to CNBC.

EXCERPT 1:

STEVE LIESMAN: WHEN THE STOCK MARKET OPENS UP DOWN 1,000 POINTS, DO YOU GET NERVOUS?

ESTHER GEORGE: I PAY ATTENTION. BECAUSE AGAIN THAT'S SOME VOLATILITY YOU WANT TO UNDERSTAND. BUT REMEMBER, WE'VE BEEN IN A PERIOD OF A HIGHLY ACCOMMODATIVE POLICY WITH THE KIND OF TOOLS BEING USED BY THE FED THAT WERE TARGETED AT ASSET VALUES AND SO WHEN YOU EFFECT THOSE KIND OF PRICES FOR A LONG PERIOD OF TIME I EXPECT WE ARE GOING TO SEE THAT KIND OF VOLATILITY. AND SO THE QUESTION IS TO WHAT DEGREE AND HOW ARE WE POSITIONED TO DEAL WITH THAT.

LIESMAN: SO YOU LINK THE RECENT MARKET VOLATILITY TO FED POLICY?

GEORGE: I THINK THAT IT HAS AN INFLUENCE ON IT. AND I TAKE THAT BECAUSE WHEN WE DID QUANTITATIVE EASING, POLICY MAKERS WERE CLEAR ABOUT HOW IT WOULD EFFECT ASSET VALUES. SO WHETHER THAT MEANS ASSETS ARE OVERPRICED I DON'T KNOW. BUT I DO KNOW IT INTRODUCES AN IMPORTANT FACTOR TO HOW ASSETS ARE PRICED IN THE ECONOMY.

LIESMAN: SO THAT BEGS THE QUESTION AS TO WHETHER OR NOT WHAT HAPPENS IN THE MARKETS AND THE MARKET'S RECENT REACTION SHOULD INFLUENCE THE FEDERAL RESERVE AND WHETHER OR NOT IT CHANGES RATES.

GEORGE: POLICY MAKERS ARE ALWAYS TRYING TO DEFINE WHETHER THE FORECAST SHOULD ADJUST BECAUSE OF WHAT THEY HAVE SEEN. I THINK YOU HAVE TO BE PARTICULARLY CAREFUL WHEN MARKETS MOVE WHETHER THAT IS A SIGNAL OF SOMETHING MORE FUNDAMENTAL OR WHETHER IT IS A READJUSTMENT OF SOME SORT.

LIESMAN: YOU HAVE BEEN FAIRLY OUTSPOKEN THAT YOU THINK THE FED SHOULD RAISE RATES – THE FEDERAL RESERVE SHOULD RAISE INTEREST RATES. HAS ANYTHING YOU'VE SEEN THE LAST SEVERAL DAYS CHANGED YOUR OPINION OF THAT?

GEORGE: SO I'VE BEEN TALKING ABOUT THE NORMALIZATION OF RATES FOR SOMETIME. THIS WEEK'S EVENTS COMPLICATE THE PICTURE, BUT I THINK IT'S TOO SOON TO SAY IT FUNDAMENTALLY CHANGES THAT PICTURE. SO IN MY OWN VIEW THE NORMALIZATION PROCESS NEEDS TO BEGIN AND THE ECONOMY IS PERFORMING IN A WAY THAT I THINK IT'S PREPARED TO TAKE THAT.

LIESMAN: WHAT'S YOUR VIEW OF THE U.S. ECONOMY RIGHT NOW?

GEORGE: I THINK THE U.S. ECONOMY IS CONTINUING A TREND RATE OF GROWTH. IT HAS BEEN UNEVEN. AS YOU KNOW, THE FIRST QUARTER TOOK US BACK A LITTLE BIT TO UNDERSTAND WHY GROWTH CONTRACTED, BUT IT LOOKS AGAIN NOW SECOND QUARTER THAT WE'RE BACK ON TRACK. SO I THINK THE ECONOMY FUNDAMENTALLY IS IN A GOOD PLACE.

EXCERPT 2:

ANDREW ROSS SORKIN: KANSAS CITY FED PRESIDENT ESTHER GEORGE SAYING THE U.S. ECONOMY IS PREPARED FOR FED POLICY TO NORMALIZE. HERE'S WHAT SHE TOLD OUR SENIOR ECONOMICS REPORTER STEVE LIESMAN ABOUT THE FED'S RATE HIKE PATH.

GEORGE: I HOPE WE CAN GO GRADUALLY. I THINK THAT GIVEN HOW LONG WE HAVE BEEN AT ZERO WOULD BE THE IDEAL PATH TO BE ABLE TO LIFT OFF, TO WAIT AND SEE HOW THE ECONOMY DOES AND THEN DECIDE WHEN THE NEXT MOVE IS.

LIESMAN: WHEN IT COMES TO RAISING INTEREST RATES, ARE YOU CONCERNED THAT THE MARKET WOULD BRING FORWARD ALL FUTURE RATES TO TODAY, THIS IDEA THAT THEY SORT OF PRICE TO THE TERMINAL RATE? AND HOW DOES THE FED AVOID THAT?

GEORGE: SO THAT'S BEEN THE TRADITIONAL REACTION IS TO BRING THAT FORWARD. I THINK THROUGH A LOT OF COMMUNICATIONS AND EFFORTS TO BE MORE TRANSPARENT ABOUT HOW POLICY MAKERS ARE THINKING ABOUT RATES THIS TIME, I HOPE WILL HELP THAT. BUT, YES, TO SOME DEGREE THAT ALWAYS PULLS FORWARD IN SOME SENSE.

LIESMAN: A STRONGER DOLLAR, LOWER COMMODITY PRICES, CHINESE ECONOMIC WEAKNESS, WHAT TYPE OF EFFECT DO YOU EXPECT THAT TO HAVE ON THE NEAR-TERM INFLATION DATA?

GEORGE: WELL, I EXPECT THERE IS GOING TO CONTINUE TO BE DISINFLATIONARY PRESSURES FOR SOMETIME GIVEN WHAT IS GOING ON IN THE REST OF THE WORLD. TO WHAT EXTENT THAT FEEDS THROUGH TO THE REAL ECONOMY, TO WHAT EXTENT WE SEE THAT CHANGING EXPECTATIONS, REMAINS TO BE SEEN. THOSE HAVE HELD UP PRETTY WELL WHICH IS WHY I THINK THIS IS STILL A TRANSITORY STORY.

LIESMAN: WHY DID YOU COME UP WITH INFLATION AS THE TOPIC FOR THIS CONFERENCE AND WHAT DO YOU HOPE TO GET OUT OF THE CONFERENCE?

GEORGE: SO THE ISSUES AROUND INFLATION WE ARE SEEING GLOBALLY, MAJOR CENTRAL BANKS STRUGGLE WITH. AND THE QUESTION I THINK IS, IS IT A FUNCTION OF THE NATURE OF THE CRISIS WE JUST WENT THROUGH, WHAT ADJUSTMENTS MAY HAVE COME FROM THAT, THE TIME THAT IT TAKES TO RESTORE ECONOMIES TO THEIR FULL POTENTIAL, IS HAVING THESE EFFECTS.

LIESMAN: ARE YOU CONCERNED ABOUT THE MARKET FALLOUT FROM THE FEDERAL RESERVE RAISING INTEREST RATES IN THE CURRENT ENVIRONMENT?

GEORGE: I THINK THERE COULD BE VOLATILITY, STEVE. DO I WORRY ABOUT THAT? IF I THOUGHT THE ECONOMY WAS NOT ON RELATIVELY SURE FOOTING HERE, THEN I THINK THE COMPLICATIONS FROM THAT WOULD CAUSE POLICYMAKERS TO HAVE TO THINK ABOUT THAT. BUT AGAIN, GIVEN THE FUNDAMENTALS, I THINK WE ARE IN A GOOD POSITION NOW AND WE CAN'T WAIT UNTIL WE CAN DETERMINE WHETHER MARKET CONDITIONS ARE JUST RIGHT.

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