MNI POLICY: Fed's Brainard-'Substantial Progress' To Take Time

Federal Reserve Board Governor Lael Brainard said Tuesday the U.S. economy will take a while to recover enough for the central bank to begin scaling back its USD120 billion monthly bond purchases.

"The economy remains far from our goals in terms of both employment and inflation, and it will take some time to achieve substantial further progress," Brainard said in a speech. "We will need to be patient to achieve the outcomes set out in our guidance."

The Fed has said it will need to see "substantial further progress" toward its full employment and price stability goals before tapering QE.

"In assessing substantial further progress, I will be looking for realized progress toward both our employment and inflation goals," Brainard said. "I will be looking for indicators that show the progress on employment is broad based and inclusive rather than focusing solely on the aggregate headline unemployment rate."

Brainard said vaccinations and strong fiscal policy support have brightened the outlook but risks remain. She said the rise in long-term inflation expectations is consistent with the Fed's framework shift emphasizing modest overshoots of the 2% inflation goal to make up for past misses to the downside.

"When considering the inflation outlook, it is important to remember that inflation has averaged slightly below 2% for over a quarter-century," she said.

Any potential spike in prices as the Covid crisis ebbs would likely be temporary, Brainard added. "A surge in demand and any inflationary bottlenecks would likely be transitory, as fiscal tailwinds to growth early this year are likely to transition to headwinds sometime thereafter."