Central Banks

Thursday, May 16, 2019 - 12:15

MNI POLICY: Fed's Brainard: To Proceed Cautiously; Infl Muted


By Jean Yung

WASHINGTON (MNI) - The Federal Reserve should move cautiously in adjusting policy, given low neutral interest rates and inflation below target, Fed Governor Lael Brainard said Thursday.

She again called for the central bank to guard against financial imbalances through the active use of countercyclical tools such as the countercyclical capital buffer.

"In my view, it is therefore wise to proceed cautiously, helping to sustain the expansion and further gains in employment and with appropriate regulatory safeguards that reduce the risk of dangerous financial imbalances."

The following are other major points from her remarks prepared for a National Tax Association forum in Washington:

--Underlying trend inflation appears to be somewhat below the Fed's 2% goal and raises the risk that inflation expectations fall.

--The Fed could take advantage of a mild period of above-target inflation to reinforce its message that it is serious about achieving its 2% goal.

--Low inflation and low real neutral rates are a challenge for monetary policy, as there is little policy room to lower rates in a downturn.

--Extended periods of above-potential growth and low interest rates encourages a reach for yield and may cause elevated financial imbalances. Monetary policy might not be able to "restrain the financial cycle" as well as it has in the past.

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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