MNI POLICY: Fed's Brainard Sees USD120B QE Pace For Some Time

Federal Reserve Governor Lael Brainard expects the U.S. central bank to keep buying assets at the current pace of USD120 billion a month "for some time" as the economy sees damage from the winter Covid surge before vaccinations underpin a faster expansion later this year.

The FOMC needs to see "substantial further progress" before dialing back its QE program and Brainard reiterated that commitment Wednesday.

"The economy is far away from our goals in terms of both employment and inflation, and even under an optimistic outlook, it will take time to achieve substantial further progress," she said in remarks prepared for a Canadian economic conference. "The current pace of purchases will remain appropriate for quite some time."

In assessing substantial further progress, Brainard will look for "sustained improvements in realized and expected inflation and will examine a range of indicators to assess shortfalls from maximum employment."

Inflation could rise temporarily above 2% in a few months when the steep drops in prices from March and April fall out of the 12-month calculation, "but it will be important to see sustained improvement to meet our average inflation goal," she said. Core PCE inflation currently stands at 1.4%.

Overall employment remains 10 million jobs below pre-pandemic levels. Adjusting for statistical errors and the decline in participation since February, the 6.7% headline unemployment rate would be 10% and likely above 20% for workers in the bottom wage quartile, she noted.

"Most forecasts predict a significant rebound in aggregate spending this year. And there is some risk to the upside if the efficient delivery of vaccines across many jurisdictions ultimately results in a globally synchronized expansion," she said.

Still, the Fed is committed to keeping borrowing costs low, improving inflation and enabling the labor market to heal, "leading to a broader-based and stronger recovery."