MNI POLICY: Fed's Brainard: 'Gradual' Appropriate In Near Term

By Kevin Kastner

     WASHINGTON (MNI) - Federal Reserve Governor Lael Brainard said Friday that

the FOMC's gradual path of rate increases has "served us well" and suggested

that that remains the appropriate approach in the near term as the U.S. economy

is currently strong, but could face issues over the next few years.

     The following are the key monetary policy and economic points from her

speech to the Peterson Institute that focused mostly on financial stability:

     - Brainard said that the "gradual path of increases in the federal funds

rate has served us well by giving us time to assess the effects of policy as we

have proceeded." She added that "approach remains appropriate in the near term,

although the policy path increasingly will depend on how the outlook evolves."

     - Brainard noted that labor market indicators have been strong,

unemployment has been low, and that year/year wage growth topped 3% in recent

months, all of which she called "welcome developments."

     - At the same time, inflation remains "muted overall," Brainard said, with

underlying inflation data "providing little signal of an outbreak of inflation

to the upside, on the one hand, and reassurance that underlying trend inflation

may be close to our target of 2 percent on the other."

     - Brainard noted that consumer spending looks "robust" for the fourth

quarter and that business investment should be "solid" even as oil prices have

declined.

     - With all these positive indicators, Brainard said "there are good reasons

to expect growth to remain solid next year." However, she cautioned that some of

the tailwinds that helped the U.S. economy in 2018 are likely to lose their

strength in 2019 and into 2020. She particularly singled out fiscal policy,

which she said should continue to provide a boost into 2019, but could actually

become a headwind in 2020. 

     - Additionally, business capital spending could be impacted by trade policy

uncertainty. Brainard also cited business reports of qualified labor shortages

and increases cost from inputs. Financial conditions has also tightened

recently, Brainard said, and while they still support growth, they less

supportive than last year.

--MNI Washington Bureau; tel: +1 202-371-2121; email: kevin.kastner@marketnews.com

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