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WHEN: Today, Thursday, September 29th
WHERE: CNBC's "Squawk Box"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Federal Reserve Bank of Kansas City President Esther George and CNBC's Steve Liesman on "Squawk Box" (M-F, 6AM-9AM ET) today, Thursday, September 29th. Following are links to the video on CNBC.com: http://video.cnbc.com/gallery/?video=3000555191, http://video.cnbc.com/gallery/?video=3000555190 and http://video.cnbc.com/gallery/?video=3000555187.
All references must be sourced to CNBC.
STEVE LIESMAN: HEY, BECKY.GOOD MORNING. STEVE LEISMAN HERE FROM THE KANSAS CITY FEDERAL RESERVE BANK, ONE OF THE NICER FEDERAL RESERVE BANKS I'VE HAD A CHANCE TO BE IN. I'M HERE WITH ESTHER GEORGE THE PRESIDENT OF THE BANK. ESTHER, THANKS FOR JOINING US.
ESTHER GEORGE: GOOD MORNING. GOOD TO HAVE YOU.
LIESMAN: SO THIS A RARE OPPORTUNITY. THREE BREAKING PIECES OF DATA THAT ARE RIGHT ON TOPIC HERE. TRADE, JOBLESS CLAIMS, AND THE GDP. TELL US HOW YOU AS A FED PRESIDENT PROCESS THESE WHEN THEY COME OUT LIKE THIS.
GEORGE: SO WE'RE ALWAYS WATCHING TO SEE WHAT REVISIONS COME OUT, WHETHER IT CONTINUES TO CONFIRM THE OUTLOOK. WHETHER IT CAUSES US TO CHANGE A BIT. SO I THINK TODAY'S NEWS ON THE WHOLE TELLS US THAT THE ECONOMY IS GOING TO CONTINUE ITS FORWARD PROGRESS BASED ON THE OUTLOOK.
LIESMAN: SO WE HAD A SECOND QUARTER GDP THAT WAS PRETTY LAME. IT WAS DOWN IN THE 1%. NOW IT'S COME UP 1.4%. YOU HAVE THAT WEAKNESS THERE BUT ALSO THE JOBLESS CLAIMS HAVE BEEN IN THE 250 RANGE. WHAT DOES THAT TELL YOU ABOUT THE OUTLOOK HERE FOR JOBS?
GEORGE: WELL, I THINK MOST ENCOURAGING HAS BEEN LOOKING AT VARIOUS ASPECTS OF THE JOB MARKET. AND, AS YOU KNOW, NOT EVERY PART OF THE JOB MARKET IS FULLY HEALED OR WHERE YOU'D WANT IT TO BE, BUT IT DOES SUGGEST THAT THAT MOMENTUM IS CONTINUING AND THAT'S GOING TO BE IMPORTANT TO THE OUTLOOK.
LIESMAN: I WANT TO SHIFT GEARS TO WHAT'S HAPPENED, SOME OF THE COMMENTS THAT HAVE BEEN MADE POLITICALLY ABOUT THE FEDERAL RESERVE. HOW DO YOU REACT TO COMMENTS THAT THE FEDERAL RESERVE IS MAKING POLICY – FROM THE REPUBLICAN NOMINEE – MAKING POLICY BASED ON POLITICS?
GEORGE: SO STEVE, I DON'T COMMENT ON ANY POLITICIAN COMMENTS OR MEMBERS OF CONGRESS. BUT I WILL TELL YOU THAT THESE ARE NOT FACTORS FOR THE FEDERAL RESERVE. AND THAT IS INTENTIONAL. THIS INSTITUTION IS A-POLITICAL. IT'S IMPORTANT THAT WE KEEP OUR EYE ON WHAT'S HAPPENING IN THE ECONOMY AND STAY FOCUSED ON WHAT BENEFITS THE ECONOMY AS A WHOLE. SO BOTH BY DESIGN OF OUR STRUCTURE, OUR GOVERNANCE, THE FORMAT OF THE FOMC MEETINGS, POLITICS IS NOT A FACTOR FOR US.
LIESMAN: ONE OF YOUR COLLEAGUES, THOUGH, FEDERAL RESERVE GOVERNOR LAEL BRAINARD GAVE THE MAXIMUM DONATION POLITICALLY. HOW DO YOU FEEL ABOUT THAT? DO YOU THINK FEDERAL RESERVE OFFICIALS THAT SIT ON THE FOMC SHOULD BE GIVING POLITICAL CONTRIBUTIONS?
GEORGE: SO THE LAW ALLOWS FOR FED OFFICIALS TO MAKE THOSE KINDS OF DONATIONS. THERE'S NOTHING ILLEGAL ABOUT THAT. WE ARE ALWAYS SENSITIVE TO WHAT APPEARANCES ARE AND THAT'S BUILT INTO OUR CODE OF CONDUCT AND OTHER THINGS. SO IT IS TO THE INDIVIDUAL'S DISCRETION AND LEGAL FOR THEM TO MAKE SUCH CONTRIBUTIONS.
LIESMAN: I HAVE TO PRESS YOU ON IT. THE LAW ALLOWS FOR A LOT OF THINGS. IT DOESN'T MEAN THAT ALL OF THEM ARE NECESSARILY THE RIGHT THING TO DO. IS THAT THE RIGHT THING TO DO?
GEORGE: SO, LAEL BRAINARD AND OTHER FED OFFICIALS MAKE THOSE JUDGMENTS FOR THEMSELVES. AND WE KNOW IN TODAY'S ENVIRONMENT, THERE IS A LOT OF ATTENTION ON THE FEDERAL RESERVE AND A LOT OF QUESTIONS ABOUT HOW IT OPERATES. SO I, FOR MYSELF, TRY IN MANY MATTERS TO THINK ABOUT THESE ISSUES OF APPEARANCES. AND I UNDERSTAND WHY IT'S SENSITIVE.
LIESMAN: LET'S GO ONTO FEDERAL RESERVE POLICY. A PRETTY BIG SPLIT AT THE LAST MEETING. THREE DISSENTS. I GUESS YOU HAVE TO GO BACK QUITE A NUMBER OF YEARS TO GET TO THAT. DOES THAT TALK ABOUT A FRACTURED FED OR A DIVIDED FED?
GEORGE: WELL, I THINK THE COMMITTEE BY DESIGN IS INTENDED TO BRING FORWARD DIFFERENT VIEWS. I THINK THAT'S HEALTHY FOR DEBATE. IT'S HEALTHY FOR DELIBERATION ON ISSUES THAT ARE REALLY CHALLENGING RIGHT NOW. SO YOU WANT THOSE VIEWS TO COME FORWARD. AND YOU WANT THERE TO BE THAT KIND OF ATTENTION ON WHAT ARGUABLY ARE DIFFICULT CHOICES.
LIESMAN: YOU LOOK AT – OBVIOUSLY YOU WANTED THE FEDERAL RESERVE TO HIKE AT THE LAST MEETING. BUT YOU ALSO HAVE, I'M ASSUMING, BECAUSE THERE'S A COUPLE DOTS IN THERE THAT ARE UP THERE, YOU HAVE BUILT IN MORE THAN ONE HIKE THIS YEAR. DO YOU THINK THE FED SHOULD BE – NOT JUST THIS MEETING, BUT AT SUBSEQUENT MEETINGS BE HIKING THIS YEAR TO BRING IT UP ABOVE, WHAT? 1% OR SOMETHING LIKE THAT FOR THIS YEAR?
GEORGE: SO I'VE FELT THAT IT WAS TIME TO BEGIN TO REMOVE SOME ACCOMMODATION. AND I BASED THAT OFF OF LOOKING WHERE THE JOB MARKET IS PROGRESSING, LOOKING AT THE PROGRESS THAT INFLATION IS MAKING AND THINKING ABOUT VARIOUS POLICY PRESCRIPTIONS THAT SORT OF GUIDE YOU TO THINK ABOUT WHERE YOU ARE TODAY. AND I THINK AS I LOOK AT THOSE THINGS, THEY'VE ARGUED FOR CONTINUING TO REMOVE ACCOMMODATION. WE'RE LATE IN THE YEAR NOW, SO HOW MANY MOVES WE CAN MAKE IS GOING TO BE A FUNCTION OF THE CALENDAR.
LIESMAN: BUT YOU THINK IF THE FUNDS RATE WERE UP, SAY, NEAR 1%, FOR EXAMPLE, THAT THE ECONOMY COULD STILL GROW NEAR ITS POTENTIAL AND THAT WE WOULD STILL BE ADDING A GOOD NUMBER OF JOBS IF YOU RAISED THE INTEREST RATE UP HIGHER?
GEORGE: THAT'S MY OUTLOOK. THAT'S BUILT INTO THESE FORECASTS TO SAY UNDER HIGHER INTEREST RATES CAN THE ECONOMY CONTINUE TO PERFORM? NONE OF US WANT TO SEE THE ECONOMY SLOW DOWN. THIS IS NOT A QUESTION OF TRYING TO SLOW DOWN AN OVERHEATING ECONOMY.
LIESMAN: AND YOU STILL THINK AT, SO FOR EXAMPLE, A 1% FUNDS RATE, THE ECONOMY WOULD STILL BE ACCOMMODATIVE? THE FED WOULD STILL BE ACCOMMODATIVE?
GEORGE: UNDER MY FORECAST IT WOULD STILL BE ACCOMMODATIVE AND THE ECONOMY CAN STILL GROW.
LIESMAN: LET ME TALK ABOUT – WE'RE HERE AT THE MINORITY BANKERS CONFERENCE, WHICH YOU GUYS HAVE PUT TOGETHER. TELL US WHY THE NEED FOR A CONFERENCE LIKE THIS.
GEORGE: SO I THINK THIS CONFERENCE IS VERY IMPORTANT. AND IT'S THE KIND OF CONFERENCE WHERE IN THE PAST WE WOULD BRING BANKERS TOGETHER, CEOs FROM COMMERCIAL BANKS, TO TALK ABOUT ISSUES IN THE INDUSTRY. AS YOU LOOK OUT IN THE AUDIENCE, THOUGH, AND FOR THE PAST TWO YEARS, WE BELIEVE THAT FOCUSING ON WOMEN AND MINORITIES IS GOING TO BE KEY. BECAUSE THOSE ARE THE FUTURE LEADERS. THOSE ARE THE INDIVIDUALS WHERE MORE VISIBILITY, MORE NETWORKING, AND THE OPPORTUNITY TO REALLY DEVELOP THEIR LEADERSHIP BY TALKING ABOUT THESE ISSUES IS IMPORTANT.
LIESMAN: THE FED HAS BEEN CRITICIZED ON THE FRONT OF FEDERAL RESERVE BANKS. BANK PRESIDENTS THAT THERE'S NOT ENOUGH DIVERSITY THERE. DOES THE FED NEED TO DO A BETTER JOB OF BRINGING MINORITIES, FOR EXAMPLE, INTO THE TOP SPOTS ON THE FEDERAL RESERVE?
GEORGE: OH, I THINK WE DO. WE'VE MADE PROGRESS, BUT BOTH IN THE RESERVE BANKS AND THE BOARD OF GOVERNORS, WHEN YOU LOOK ACROSS, THERE IS OPPORTUNITY TO BRING MORE DIVERSITY TO THAT BODY.
LIESMAN: SWITCH NOW TO SOME OF THE INTERNATIONAL HEADWINDS THAT HAVE BEEN OUT THERE. EUROPE SEEMS TO BE DOING A LITTLE BIT BETTER. JAPAN, I CAN'T EVEN TELL. IF YOU COULD TELL WHAT'S GOING ON IN JAPAN, IT'S VERY DIFFICULT TO KNOW. HOW MUCH DOES WHAT'S HAPPENING OVERSEAS STILL INFLUENCE WHAT THE FEDERAL RESERVE IS DOING NOW?
GEORGE: SO I THINK BY NATURE OF HOW OUR ECONOMIES WORK TODAY, WE ARE ALWAYS GOING TO BE THINKING ABOUT WHAT ARE THE IMPLICATIONS, WHAT'S HAPPENING AROUND THE WORLD ON OUR ECONOMY. THOSE ARE NOT OUTSIZED RISKS TODAY IN MY MIND. THINGS WE HAVE TO WATCH. THINGS THAT WE'LL BE LOOKING AT GOING FORWARD. BUT I DON'T THINK THEY POSE SOME PARTICULAR RISK TO THE OUTLOOK TODAY THAT WOULD CAUSE ME TO CHANGE HOW I THINK ABOUT THE ECONOMY.
LIESMAN: MAYBE QUITE THE OPPOSITE. SOME PEOPLE LOOK AT WHAT'S HAPPENED OVERSEAS AND SAY YOU KNOW WHAT? IT SHOWS THE U.S. ECONOMY IS PRETTY RESILIENT. WE GOT THROUGH THE SCARE BACK IN JANUARY AND FEBRUARY WHERE IT WAS FEARS THAT CHINA WOULD CAUSE A RECESSION IN THE U.S. OR A RECESSION IN CHINA. AND THEN BREXIT SEEMS TO BE A NON-ISSUE. DID EVERYBODY OVERREACT TO THAT?
GEORGE: WELL, I THINK WE'RE SENSITIVE TO THE KINDS OF UNEXPECTED SHOCKS THAT CAN RIPPLE THROUGH THE ECONOMY. BEING ATTENTIVE TO THOSE. BUT I'M DELIGHTED THAT WE DIDN'T EXPERIENCE THOSE WORST CASES. AND I THINK AS WE GO FORWARD, YOU HAVE TO CONTINUE TO NOT OVERREACT, BUT TO BE MINDFUL THAT THINGS CAN HAPPEN AND WEIGH THE RISK.
LIESMAN: AND IT'S WORTH POINTING OUT, YOU'RE NOT A MONOLITHIC DISSENTER IN THE SENSE THAT YOU DISSENTED AND THEN YOU PAUSED BECAUSE YOU WANTED TO SEE WHAT HAPPENED WITH BREXIT. AND THEN, IN YOUR OPINION, BEGINNING AGAIN IN SEPTEMBER, YOU WERE READY TO GO AGAIN. AND YOU THINK THE FOMC SHOULD HAVE BEEN READY TO GO.
GEORGE: THAT WAS MY VIEW. YEAH, IN JUNE I DID NOT DISSENT. BECAUSE IN ADDITION TO THE BREXIT VOTE, WE ALSO HAD GOTTEN A JOBS NUMBER –
LIESMAN: A SQUIRRELY JOBS NUMBER, YEAH. SURE.
GEORGE: THAT LOOKED STRANGE. AND SO I THOUGHT THE COMBINATION WAS WORTH WAITING TO SEE WHAT THE NEXT MONTH WOULD SHOW. BUT SINCE THEN, I CONTINUE TO HAVE HAD A SIMILAR OUTLOOK FOR THE ECONOMY AND I THINK IT'S TIME.
LIESMAN: FOR YOUR COLLEAGUES, THE THREE QUARTERS OF AROUND 1%-ISH GROWTH HAS SPOOKED THEM. BUT YOU'RE NOT CONCERNED. YOU'RE LESS CONCERNED ABOUT THAT?
GEORGE: WELL, I UNDERSTAND GROWTH IS LESS. I WISH IT WERE HIGHER. BUT ON THE WHOLE, WHEN YOU LOOK AT HOW LABOR MARKETS ARE CONTINUING TO MOVE FORWARD IN THE CONTEXT OF LOWER GROWTH, IT SUGGESTS THAT THERE IS OPPORTUNITY TO REMOVE THAT ACCOMMODATION. AND AGAIN, TO MAKE SURE THAT WE KEEP PACE WITH AN EVOLVING ECONOMY.
LIESMAN: THE PUSH BACK AGAINST YOUR OUTLOOK IS THAT THIS CONTINUING CONCERN ABOUT THIS INFLATION THAT NEVER QUITE SHOWS UP. DOES IT CAUSE YOU TO THINK WELL, MAYBE I HAVE THE INFLATION DYNAMIC WRONG IN MY HEAD? OR IN MY MODELS ABOUT HOW IT WORKS?
GEORGE: SO I THINK WATCHING THE THINGS THAT HAVE PUSHED BACK AGAINST INFLATION HAVE BEEN IMPORTANT TO ACCOUNT HERE. SO BETWEEN OIL PRICE SHOCKS AND OTHER THINGS HAPPENING AROUND THE WORLD, WE HAVE SEEN LOWER INFLATION. BUT IT'S NOT FAR OFF WHERE WE NEED TO BE. AND GIVEN OTHER FACTORS IN THE ECONOMY, WHEN YOU SEE GROWTH, WHEN YOU SEE THE LABOR MARKET MOVING FORWARD, IT PUTS SOME CONTEXT AROUND THAT INFLATION NUMBER. SO I SUSPECT IT'S GOING TO CONTINUE TO MOVE IN THE DIRECTION OF MOVING TOWARD 2%.
LIESMAN: ESTHER GEORGE, THANKS FOR JOINING US HERE.
GEORGE: THANK YOU, STEVE.
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