Fed's Brainard Backs Balance-Sheet Runoff 'Soon,' Wary on Rates

12 July, 2017, 13:44 | Author: Terri Saunders
  • Fed's Brainard Backs Balance-Sheet Runoff 'Soon,' Wary on Rates

She is ideologically very close to Fed Chair Janet Yellen and was a prominent dovish member of the FOMC board, however, this year, along with other Fed Reserve members, she has transformed into a hawk.

Calling the "normalization of the federal funds rate ... well under way", Federal Reserve Board Governor Lael Brainard said it is nearly time for balance sheet run off.

Answering audience questions at an economics event in Sydney, San Francisco Federal Reserve Bank President John Williams said he believed a recent softening in USA inflation was transitory and that inflation would pick up to around 2 percent over the coming year.

The balance sheet is a $4.5 trillion compilation of bonds the Fed purchased to rescue the economy from the throes of the financial crisis. Essentially, the Fed will set caps of how much it will allow to run off and reinvest the rest.

Brainard said Tuesday she'd support letting the Fed's balance sheet being to unwind in months if economic metrics stay strong.

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After taking its benchmark funds rate to near-zero during the crisis, the Fed started raising in December 2015 to a total of four increases.

The Fed has raised interest rates three times in the past seven months following almost a decade without increases before 2015. The current funds target is 1 percent to 1.25 percent.

"I am looking for that wage growth as an indicator that, okay, maybe the economy's overheating, maybe now we are going to start seeing inflation, maybe that's going to lead us to need to raise interest rates", Kashkari told the Minnesota Women's Economic Roundtable.

"Once that (balance sheet reduction) process begins, I will want to assess the inflation process closely before making a determination on further adjustments to the federal funds rate in light of the recent softness in core PCE (personal consumption expenditure) inflation", said Brainard. "If that is the case, we would not have much more additional work to do on moving to a neutral stance".

On Tuesday, Brainard expressed concerns over the low inflation in recent months, and would take a cautious approach in weighing on interest rate hike.

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