Fed dove Brainard pushes back against rate hikes
Fed governor Lael Brainard points out in remarks in New York that the Federal Reserve’s moves to shrink its balance sheet “relatively soon” may put downward pressure on the so-called neutral rate of interest, by boosting the level of the term premium on the 10-year Treasury yield by an estimated 40 basis points or so over the first few years.
“Typical rules of thumb suggest that such an increase in term premiums would imply a decrease in the short-run neutral rate of interest,” she notes. “To the extent that the neutral rate remains low relative to its historical value, there is a high premium on guiding inflation back up to target so as to retain space to buffer adverse shocks with conventional policy,” she says.
Remarks courtesy of DowJones News