While the Federal Reserve continues to pursue a course of gradual increases to the target federal funds rate, Federal Reserve Governor Lael Brainard cautioned today that economic uncertainties — including the long-term effects of tax cuts on inflation and potential changes to U.S. trade policy — could cause the Fed to change the timing and pace of future hikes.
As economic expansion continues, Brainard noted that wage growth has improved and said she expects real GDP growth to accelerate in the coming quarters. However, she pointed to geopolitical uncertainties and international market stressors that could potentially disrupt the current course of the economy, in addition to an uncertain labor market at home. She also noted concern about weak underlying inflation. “I would not underestimate the challenge of calibrating monetary policy to sustain full employment and re-anchor trend inflation around 2 percent, while adjusting to sizable stimulus at a time when resource constraints are tightening and the economy is growing above trend,” she said.
Brainard added, however, that the current outlook “suggests a policy path that moves gradually from modestly accommodative today to neutral — and, after some time, modestly beyond neutral — against the backdrop of a longer-run neutral rate that is likely to remain low by historical standards.”