Key highlights from the speech by Fed Governor Lael Brainard at the Panel on Monetary Policy "Rethinking Macroeconomic Policy," a conference sponsored by the Peterson Institute for International Economics, Washington D.C.:
- The low level of the neutral rate limits the amount of space available for cutting the federal funds rate to offset adverse developments.
- Further complicating the ability of central banks to achieve their inflation objectives in today's new normal is the very flat Phillips curve observed in the United States and many other advanced economies
- Persistence of the shortfall in inflation from our objective is an important consideration for monetary policy.
- The standard approach is typically designed to achieve "convergence from below," in which inflation gradually rises to its target.
- Given the lags in the effects of monetary policy, convergence from below would necessitate raising interest rates preemptively, well in advance of inflation reaching its target.
- Policy news that leads to a 25 basis point increase in the expected interest rate portion of the 10‑year Treasury yield is associated with a roughly 3 percentage point appreciation in the dollar.
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