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Brainard Says Fed Could Signal Mild Inflation Overshoot Is OK
2019-05-16 16:15:00.8 GMT

By Craig Torres
(Bloomberg) — Federal Reserve Governor Lael Brainard says
Fed’s “goal now is to get underlying trend inflation around our
target on a sustained basis.”
* Brainard comments in text of speech in Washington
* “One possibility we might refer to as ‘opportunistic
reflation’ would be to take advantage of a modest increase in
actual inflation to demonstrate to the public our commitment to
our inflation goal on a symmetric basis”
** “For example, suppose that an unexpected increase in core
import price inflation drove overall inflation modestly above 2%
for a couple of years. The Federal Reserve could use that
opportunity to communicate that a mild overshooting of inflation
is consistent with our goals and to align policy with that
statement”
* “It is important to achieve inflation and inflation
expectations around our 2% target on a sustained basis while
guarding against financial imbalances through active use of
countercyclical tools”
** “We want to be mindful of the risk of financial imbalances
that could amplify any shock and help tip the economy into
recession, which the Federal Reserve has less conventional space
to address in today’s low interest rate environment. In my view,
it is therefore wise to proceed cautiously”
* Says job market is strong, consumers remain confident though
trade conflict is “creating uncertainty”
* Low inflation has been “puzzling” though cites Dallas Fed’s
trimmed mean measure showing 2% inflation in past 12 months
* Below-target inflation likely reflects some softening in
underlying trend, rather than entirely labor market slack or
“transitory shocks”
* “Now is a bad time to be weakening the core resilience of our
largest banking institutions or to be weakening oversight over
the nonbank financial system”
** “Instead, we should be safeguarding the capital and liquidity
buffers of banks at the center of the system, carefully
monitoring risks in the nonbank sector, and making good use of
the countercyclical tool that we have”
* NOTE: See earlier story: Brainard Says Fed ‘Committed’ to
Sustaining 2% Inflation

To contact the reporter on this story:
Craig Torres in Washington at ctorres3@bloomberg.net
To contact the editors responsible for this story:
Scott Lanman at slanman@bloomberg.net
Alister Bull