Fed Brainard addresses low inflation, US unemployment
- Combination of low interest rates and low unemployment can overextend capital markets, Fed governor says

Low inflation may be extended in the U.S. while low unemployment coupled with low rates could hurt financial balances, the U.S.' Federal Reserve Governor Lael Brainard said Thursday.

The inflation level in the U.S. has been below the Fed's target of 2 percent over the past years, but the central bank has not waited for inflation to reach this level before making its rate hikes.

The Fed has increased its benchmark interest rate twice this year, a total of four times since December 2015, while another rate hike is highly likely this December.

Meanwhile, the unemployment level in the U.S. has decreased from 8.2 percent to 4.2 percent in the last five years.

During her speech at a conference sponsored by the Peterson Institute for International Economics in Washington D.C., Brainard warned "the combination of low interest rates and low unemployment that would prevail during the inflation overshooting period could well spark capital markets to overextend, leading to financial imbalances."

She emphasized that the low interest rate level could also be a contributing factor to the current inflation level remaining persistently below the Fed's 2 percent target.

"Frequent or extended periods of low inflation run the risk of pulling down private-sector inflation expectations, which could amplify the degree and persistence of shortfalls of inflation," she said.

Stressing that monetary policymakers, such as the Fed, operate in an environment of uncertainty, she urged them to weigh the risks of tightening their monetary policies "too little or too late" against tightening "too much or too soon."

By Ovunc Kutlu in New York

Anadolu Agency






13 Oct,2017