Fed’s Brainard Says CB Would React to Higher Inflation Sparked by Fiscal Changes

January 17, 2017 Share Print 0

A leading proponent of low interest rate policy at the Federal Reserve said on Tuesday the U.S. central bank might hike interest rates more aggressively if deficit spending under the Trump administration leads to a quick economic boost.

“If fiscal policy changes lead to a more rapid elimination of slack, policy adjustment would, all else being equal, likely be more rapid,” Fed Governor Lael Brainard said in prepared remarks at an event hosted by the Brookings Institution.

She added that the Fed’s “gradual approach” to raising rates could change depending on fiscal policies.

With her comments, Brainard joined the growing chorus of policymakers at the Fed warning that sustained wider deficits could fuel inflation with the U.S. economy already near full strength.

“Full employment is within reach and could prove sustainable with the right policy mix,” she said.

via Reuters

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Alfonso Esparza

Senior Currency Analyst at Market Pulse

Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.