“Fed Official: ‘Proceed Carefully’ on Interest Rates!”

A Federal Reserve official has stated that the central bank can proceed with caution when it comes to changes in interest rates. In a speech given at the International Monetary Fund’s meeting in Washington on Wednesday, Federal Reserve Governor Lael Brainard said the Fed should exercise caution to ensure economic growth and that further, gradual interest rate hikes could be needed. Brainard highlighted that with unemployment hovering at decade lows, wages are slowly increasing and further progress in boosting inflation towards the Fed’s level of 2 percent should ensure higher growth rate would be maintained. She also mentioned that the Federal Reserve could decide to lower rates at some point if it starts seeing slowing economic data. Brainard also discussed the risks associated with rate hikes, including financial and economic stability risks, which she believes should be taken into consideration. According to Brainard a gradual approach is best when it comes to interest rate changes. This approach is consistent with maintaining a low but steady level of inflation which is in the target range the Federal Reserve has set. All in all, Brainard believes the Federal Reserve can responsibly and carefully proceed with rate changes and that more time and observation should be taken before a sizable move is made. The gradual approach should also help to mitigate economic risks and further inflation estimates, which may be hampered by large rate changes. It will be interesting to see how the Federal Reserve acts going forward.