Fed’s Brainard Calls for New Strategy to Boost Inflation
- Policy may have to be accommodative for a long time, she says
- Brainard backs Treasury-yield caps to fight future recessions
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.
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, she said in a speech in New York.
“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.
To that end, monetary “policy may have to remain accommodative for a long time” to make up for past inflation shortfalls, she added.
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 publicly staking where she thinks her fellow policy makers should go, Brainard acknowledged that the changes she was proposing may not be sufficient to fully offset future economic contractions.