Fed’s Brainard advises prudence in the removal of policy accommodation

Federal Reserve Governor Lael Brainard on Monday urged "prudence in the removal of policy accommodation," as it is helping to support continued gains in employment and progress on inflation.

Among key remarks of a speech at the Chicago Council on Global Affairs, she said that since the impact on inflation of further gradual tightening in labor market conditions is likely to be moderate and gradual, "the case to tighten policy preemptively is less compelling." 

She also noted that US monetary policy should be oriented to avoid slipping into a situation of low-growth, low-inflation situation. Brainard said “it is striking that despite active and creative monetary policies in both the euro area and Japan, inflation remains below target levels. The experiences of these economies highlight the risk of becoming trapped in a low-growth, low-inflation, low-inflation-expectations environment and suggest that policy should be oriented toward minimizing the risk of the U.S. economy slipping into such a situation.”

Brainard highlighted that headwinds from abroad should matter to US policymakers. “The fact that many advanced economies are suffering from deficient demand and have policy rates at or near the zero bound and that the U.S. dollar is a favored safe-haven asset may imply that adverse foreign demand shocks have a particularly strong effect on the value of the dollar, effectively transmitting the weakness to the U.S. economy”.