MNI: Brainard Says Fed Must Avoid Easing Off Too Soon

Federal Reserve Vice Chair Lael Brainard joined a growing consensus on the FOMC that a long period of restrictive interest rates is needed to bring inflation back to target, and warned against the dangers of easing off too soon.

"We are committed to avoiding pulling back prematurely," she said in the text of a speech. "We also recognize that risks may become more two sided at some point," she said, a reference to the views of some economists that going too far on rate hikes will needlessly trigger a damaging recession.

Most of the speech focused on global financial conditions and potential spillovers from the Fed's actions, including through a stronger U.S. dollar, though it didn't directly reference recent volatility in U.K. markets. Brainard noted many central banks are tightening like the Fed as they too see the dangers of entrenched inflation.

"The Federal Reserve’s policy deliberations are informed by analysis of how U.S. developments may affect the global financial system and how foreign developments in turn affect the U.S. economic outlook and risks to the financial system," Brainard said.

Her remarks also noted that while the Fed's policy is already by some measures restrictive, there is more coming. "The real yield curve is now in solidly positive territory at all but the very shortest maturities, and with the additional tightening and deceleration in inflation that is expected over coming quarters, the entire real curve will soon move into positive territory."

She didn't give a view of what kind of rate hike is coming at the next meeting, though some of her colleagues have suggested another 75bp hike is required.