Fed's George warns that delays on rate hikes could end badly

By Jason Lange

(Reuters) - The Federal Reserve could stoke financial instability and set the stage for a recession if it waits too long to raise interest rates further, Kansas City Fed President Esther George said on Thursday.

George said the Fed was tempting fate by keeping monetary policy exceptionally loose when the job market appears to be near full strength and inflation is picking up.

"I believe monetary policy should respond to these developments by slowly removing accommodation," she said in remarks prepared for delivery at an economic forum in York, Nebraska.

George, the lone dissenter at the Fed's March policy meeting, is among the few policymakers at the U.S. central bank who appear ready to raise rates. The consensus at the Fed appears to be to wait until at least June to for another rate hike, after raising rates in December for the first time in nearly a decade, minutes from the March meeting released on Wednesday suggested.

George, however, said easy money policies carried risks of fuelling asset bubbles.

"Currently, commercial real estate markets, where prices have continued to drift higher, bear watching," she said.

The global economy currently does appear more vulnerable, George said, a view in line with other Fed policymakers. But she said the strength of U.S. consumer spending would likely be strong enough to keep the economy on track.

The Fed could counter economic shocks by pausing rate increases or otherwise responding, she said, but keeping easy-money policies in place too long could push central bankers to tighten rates more quickly down the road.

"Historically, rapid increases in interest rates end poorly, resulting in economic recessions," she said.

(Reporting by Jason Lange in Washington; Editing by Leslie Adler)