Brainard sees gradual fed funds increases as appropriate path (for now)

While citing a need to remain vigilant for emerging risks and changing conditions, Federal Reserve Board Gov. Lael Brainard said Thursday that she continues to view gradual increases in the federal funds rate as an appropriate path for Fed monetary policy.

“In the months ahead, I expect to see tightening resource utilization in the U.S. economy as rising fiscal stimulus reinforces above-trend growth,” she said in a speech before the Forecasters Club of New York. “Continued gradual increases in the federal funds rate are likely to be consistent with sustaining strong labor market conditions and inflation around target, with the balance sheet running off gradually and predictably in the background.”

She pointed to the slowing in first-quarter real gross domestic product (GDP) but said she expects GDP to pick up over the next several quarters. “In particular, the fundamentals for consumer spending are favorable: Income gains have been strong, consumer confidence remains solid, and employment prospects remain bright. And business investment should remain solid, with drilling and mining bolstered by increased oil prices.”

She added, “From a position of full employment, the economy will likely receive a substantial boost from $1.5 trillion in personal and corporate tax cuts and a $300 billion increase in federal spending, with estimates suggesting a boost to the growth rate of real GDP of about 3/4 percent this year and next.”

While viewing gradual increases in the fed funds rate as appropriate, “I will remain vigilant for the emergence of risks and prepared to adjust if conditions change,” Brainard said.

Speech by Fed Gov. Brainard