Date
17 December 2017
Lael Brainard, a permanent voting member of the Fed’s monetary policy committee, speaks at the Economic Club of New York on Tuesday. Photo: Bloomberg
Lael Brainard, a permanent voting member of the Fed’s monetary policy committee, speaks at the Economic Club of New York on Tuesday. Photo: Bloomberg

Fed policymakers signal caution on inflation, rate hikes

The US Federal Reserve should delay interest rate hikes until it is confident inflation will rebound, an influential policymaker said on Tuesday, adding to signals of a dovish stance from the central bank in the face of weak data. 

“We should be cautious about tightening policy further until we are confident inflation is on track to achieve our target,” Fed Governor Lael Brainard said, Reuters reports.

In a speech at the Economic Club of New York, Brainard said the central bank should go so far as to make clear it is comfortable pushing prices modestly above the 2 percent target, the report said.

The Fed’s preferred gauge stands at 1.4 percent.

Brainard drew a similar line in the sand a year ago, helping delay a policy tightening by a few months.

The Fed has raised rates twice this year including in June, when it published forecasts.

Investors are skeptical and now give a December rate hike a 27 percent probability, and only even odds of a rate hike by June.

Two weeks ago, Fed Chair Janet Yellen’s other sitting governor, Jerome Powell, said low inflation allowed the Fed to be patient on a hike.

Speaking on Tuesday, another policymaker, Minneapolis Federal Reserve Bank President Neel Kashkari, went even further.

“Maybe our rate hikes are actually doing real harm to the economy,” Kashkari said at the University of Minnesota’s business school.

“It’s very possible that our rate hikes over the past 18 months are leading to slower job growth, leaving more people on the sidelines, leading to lower wage growth, and leading to lower inflation and inflation expectations.”

Kashkari was the only Fed policymaker to dissent on rate hikes this year, though some Fed policymakers who are not voters this year have also expressed strong disagreement with the current rate hike path, Reuters noted.

Brainard, in her speech, said the US economy is on a “solid footing” and benefiting from two years of an “extremely welcome” rebound in its global peers. 

Yet the policymaker seized on the fact that core US price readings have sagged for five straight years.

Such depressed underlying inflation, combined with a lack of dangerous financial asset bubbles that would force the Fed to raise rates more quickly, made the case for caution, she said.

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RC

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