Fed’s Brainard Says CB Would React to Higher Inflation Sparked by Fiscal Changes

A leading proponent of low interest rate policy at the Federal Reserve said on Tuesday the U.S. central bank might hike interest rates more aggressively if deficit spending under the Trump administration leads to a quick economic boost.

“If fiscal policy changes lead to a more rapid elimination of slack, policy adjustment would, all else being equal, likely be more rapid,” Fed Governor Lael Brainard said in prepared remarks at an event hosted by the Brookings Institution.

She added that the Fed’s “gradual approach” to raising rates could change depending on fiscal policies.

With her comments, Brainard joined the growing chorus of policymakers at the Fed warning that sustained wider deficits could fuel inflation with the U.S. economy already near full strength.

“Full employment is within reach and could prove sustainable with the right policy mix,” she said.

via Reuters

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