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The Federal Reserve’s new policy framework would have changed the Fed deliberations on rate hikes from 2015 to 2018, Federal Reserve Governor Lael Brainard argued on Tuesday. Brainard further reiterated that negative interest rates were not attractive for the US but noted that the yield curve control could potentially be a tool.

Additional takeaways

“The Fed’s new flexible average inflation targeting strategy is pragmatic, will allow for learning over time.”

“Can’t prejudge whether new inflation strategy means a commitment to above-2% inflation.”

“Uncertainty clouds the outlook, continued fiscal support is important.”

“The new framework recognizes financial stability is key for fed to attain full employment, stable prices.”

“Macroprudential and standard prudential tools are the first line of defence against financial market instability.”

“Banks should not be paying dividends, they should be hanging on to buffers, continuing to lend.”

“The Fed has a robust set of monetary policy tools, is committed to using all of them.”

“The Fed’s discussion of policy at September meeting and beyond will be framed by the new strategy.”

“Would be natural to discuss forward guidance, including threshold-based guidance, at Fed meetings.”

Market reaction

The US Dollar Index clings to recovery gains following these comments and was last seen up 0.15% on the day at 92.29.

Expert score

5

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