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Sep 12, 2016

NYT | Economy | The Analysis of Fed Official Brainard Speech, by Benyamin Appelbaum

nytimes.com
 
Binyamin Appelbaum
Lael Brainard, a Federal Reserve governor, is speaking to the Chicago Council on Global Affairs. Jim Lo Scalzo/European Pressphoto Agency
WASHINGTON — Lael Brainard, a Federal Reserve governor and a leading proponent of continuing the Fed’s stimulus campaign, said in a speech Monday that she still favored “prudence” in raising interest rates despite recent signs of economic progress.
The remarks, according to a prepared text, reinforce expectations that the Fed will not raise its benchmark interest rate when its policy-making committee meets Sept. 20 and 21.
But pressure continues to build for a rate increase before the end of the year. A few hours before Ms. Brainard spoke, Dennis Lockhart, the president of the Federal Reserve Bank of Atlanta, said the Fed should have a “serious discussion” about raising rates, though he added it was not urgent for the Fed to act in September.
Janet L. Yellen, the Fed’s chairwoman, will preside over an increasingly fractious policy-making committee. Some officials have said they are ready to raise rates while others continue to argue for patience. Ms. Yellen, seeking common ground, said in an August speech that the case for a rate increase had become stronger in recent months, but she stopped short of saying that it was time to raise rates.
Ms. Brainard’s speech was highly anticipated by investors because it was the last scheduled statement by a Fed official before the September meeting. The Fed imposes a blackout period before its meetings, held roughly every six weeks. On Friday, the stock market took a sharp hit on fears that the Fed and other central banks might be moving to slightly more restrictive monetary policies.
For the most part, however, Ms. Brainard reiterated her longstanding views.
She said that inflation remains weak, and that the labor market continues to heal.
“In the presence of uncertainty and the absence of accelerating inflationary pressures, it would be unwise for policy to foreclose on the possibility of making further gains in the labor market,” she said, according to her remarks.
Ms. Brainard is delivering the speech to the Chicago Council on Global Affairs.
She added that the context in which the Fed operates also has changed. A global decline in market interest rates means that the force of the Fed’s stimulus campaign has been reduced even without a rate increase. Moreover, she noted that the weakness of the global economy continues to weigh on the United States, contributing to an environment of persistently low growth and low inflation.
Ms. Brainard said she remains more concerned about moving too quickly than waiting too long. That is because the Fed has limited tools to ward off economic weakness, but it has considerable scope to prevent excessive inflation.
“This asymmetry in risk management in today’s new normal counsels prudence in the removal of policy accommodation,” Ms. Brainard said.