By Michael S. Derby
Federal Reserve governor Lael Brainard said Wednesday the U.S. central bank will continue to support the economy's recovery with aggressive policy actions for some time to come, and that it has no imminent plans to pare back the pace of its bond buying stimulus effort.
"We are strongly committed to achieving our maximum-employment and average inflation goals" and "it is too early to say how long it will take" to do that, Ms. Brainard said in a virtual appearance.
"The economy is far away from our goals in terms of both employment and inflation, and even under an optimistic outlook, it will take time to achieve substantial further progress" on getting hiring and inflation back to desired levels, Ms. Brainard said.
Given that outlook, "I expect that the current pace of purchases will remain appropriate for quite some time," she said, while noting that central bank policy will adjust its actions based on how the economy performs.
Ms. Brainard's remarks laid out her view on a key question now facing central bankers. With the economy recovering and vaccines coming on line to help put an end to the coronavirus pandemic, it has raised questions about the outlook for monetary policy and when the institution can pare back on some of the extraordinary level of support it is now providing.
Since March, the Fed has had its short-term target rate range at near zero levels and it signaled last month that officials expect it to stay there for several years to come. At the same time, the Fed is buying $120 billion a month in Treasury and mortgage bonds to keep long-term borrowing rates low and to support smooth market functioning.
At the Fed's December meeting, officials said they would keep going with bond buying until they had made significant progress in achieving their job and inflation goals. Over recent days, a number of Fed officials have offered their own outlooks for bond buying amid a shared view that the recovery will pick up steam in the later half of the year.
But even with that upbeat outlook, a number of Fed officials said there is too much uncertainty to predict a pull back in bond buying. Meanwhile, on Friday, Fed Vice Chairman Richard Clarida said he expects the Fed to continue through 2021 at the current pace of bond buying.
Following her formal remarks, Ms. Brainard said "our asset purchases have been a key part and an effective part of our strong monetary policy response to the economic damage from the pandemic and they are providing substantial support to the economy."
Current bond buying is helping to keep borrowing costs down, Ms. Brainard noted. She also said "we stand ready to increase those amounts should we judge that to be warranted," although the official didn't predict an increase.
Ms. Brainard, in her speech, said much of what lies ahead for the economy remains uncertain.
"The outlook will depend on the path of the virus and vaccinations," she said. Cases of infection are on the rise, but vaccines to combat this are also rolling out, which could lead to better growth down the road, the official said, adding "there is some risk to the upside if the efficient delivery of vaccines across many jurisdictions ultimately results in a globally synchronized expansion."
When it comes to inflation, she said price pressures remain low. And while expectations of future inflation gains are moving higher, they are also still low on a historical basis, Ms. Brainard said.
The official said that due to comparison to deep inflation weakness a year ago, it is possible that inflation may make a "temporary" rise over the next few months and go over the Fed's 2% target. "It will be important to see sustained improvement to meet our average inflation goal," Ms. Brainard said.
Ms. Brainard said in her speech that the U.S. economy likely shrank by 2.5% last year with the pain of the decline disproportionately borne by small business workers and others. She said renewed government support actions will play a "vital role" to help those dislocated by the crisis.
In a separate appearance, Mr. Clarida, speaking by video to a group at the Hoover Institution, said he doesn't believe that there are problems with U.S. economic fundamentals, adding "good news on the economy would be good news on the labor market."
Write to Michael S. Derby at email@example.com
(END) Dow Jones Newswires
January 13, 2021 17:03 ET (22:03 GMT)Copyright (c) 2021 Dow Jones & Company, Inc.