Fed’s Brainard calls for new strategy to boost U.S. inflation
Federal Reserve Governor Lael Brainard on Friday called for the adoption of new strategies by the central bank to achieve its 2% inflation goal and fight off future recessions.
In the text of a speech she is giving in New York Friday, she said the Fed should seek above-target price gains to make up for past inflation shortfalls and should cap Treasury debt yields if it’s forced to lower short-term rates as far as they can go in a downturn.
“Today’s low-inflation, low interest-rate environment requires not only new recession-fighting tools but also a new strategy to address the persistent undershooting of the inflation target — and the risk to inflation expectations — well before a downturn,” she said.
The Fed is engaged in an in-depth review of its policies and practices that is aimed at finding ways to cope with a new normal of subdued inflation and low interest rates. The review is expected to be completed by the middle of this year.
In setting out her thoughts on what the Fed should do, Brainard acknowledged that the changes she was proposing may not be sufficient to fully offset future economic contractions.
“In addition to a forceful response from monetary policy, robust countercyclical fiscal policy is vital,” she said in the speech to be delivered to a University of Chicago-sponsored monetary forum.