Fed’s Brainard Sees Absence of Stimulus as Largest Risk

Federal Reserve Governor Lael Brainard said on Wednesday that failing to reach a new stimulus package is the biggest risk facing the economic outlook, other than the Coronavirus (COVID-19) pandemic.

“Premature withdrawal of fiscal support would risk allowing recessionary dynamics to become entrenched, holding back employment and spending.”

“Apart from the course of the virus itself, the most significant downside risk to my outlook would be the failure of additional fiscal support to materialize.”

“This strong support from monetary policy – if combined with additional targeted fiscal support – can turn a K-shaped recovery into a broad-based and inclusive recovery that delivers better outcomes overall.”

“It is an important part of helping to achieve our goals by keeping borrowing costs low for households and businesses along the yield curve.”

“Premature withdrawal of fiscal support would risk allowing recessionary dynamics to become entrenched, holding back employment and spending, increasing scarring from extended unemployment spells, leading more businesses to shutter, and ultimately harming productive capacity.”

“We will no doubt have the opportunity in the months ahead to deliberate and to further clarify how the asset program could best work in combination with that new forward guidance.”

“While inflation may temporarily rise to or above 2% on a 12-month basis next year when the March and April price readings fall out of the 12-month calculation, my baseline forecast for inflation over the medium term is for it to remain short of 2% over the next few years.”

“I anticipate that it will take some time to start seeing that kind of longer-run slower move of inflation expectations becoming very sustainably anchored at 2%.”