(Bloomberg) -- Federal Reserve Governor Lael Brainard said U.S. economic momentum is strong and warrants a gradual approach to interest-rate increases remains appropriate for now.
“The gradual path of increases in the federal funds rate has served us well by giving us time to assess the effects of policy as we have proceeded,’’ Brainard said Friday at a conference at the Peterson Institute for International Economics in Washington. “That approach remains appropriate in the near term, although the policy path increasingly will depend on how the outlook evolves.”
The Fed governor’s comments, ahead of the U.S. central bank’s Dec. 18-19 policy meeting, suggest she is on board with an increase this month. However, similar to Chairman Jerome Powell, she also sees reasons to proceed more cautiously in 2019.
The use of the phrase “near term” is a shift for Brainard who, in a Sept. 12 speech in Detroit, said continued gradual increases in the federal funds rate were likely to be appropriate “over the next year or two.”
Brainard pointed to the labor market, including the November employment report released earlier Friday, as a sign of the economy’s underlying strength, nothing that average payroll gains of 170,000 over the past three months are “well above’’ the pace necessary to absorb new entrants. She said indicators of underlying trend inflation “remain encouraging.’’
“The most likely path for the economy is positive, although some tailwinds that have provided a boost are fading, and we may face some crosscurrents,’’ Brainard said in the text of her remarks, which also focused on financial vulnerabilities in the economy and encouraged a consideration of raising the counter cyclical capital buffer for banks. “The global growth that provided a strong tailwind going into this year has moderated.”
Stocks are down for a third trading day this week on fears of worsening U.S.-China trade relations and weakening global growth at a time when the Fed is raising interest rates. Brainard noted that financial conditions have tightened in recent months, though she said they are still supportive of growth.
“There are risks on both sides of the economy’s likely path,” she said.
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