Fed’s Brainard sees balance sheet drop soon and ‘at a rapid rate’
Key takeaways:
- Fed Governor Lael Brainard stated Tuesday the central bank could begin lessening its balance sheet as soon as May and doing so at “a rapid speed.”
- She also suggested that interest rate spikes could come more aggressively than the regular increments of 0.25 percentage points.
- The Fed already has agreed to one interest rate increase: a 0.25% climb at the March meeting, the first in almost three years and probably one of many to happen this year.
Federal Reserve Governor Lael Brainard, who favors typically loose policy and low rates, stated Tuesday the central bank ought to act fast and aggressively to push down inflation.
In a speech noted for a Minneapolis Fed discussion, Brainard said policy tightening would quickly reduce the balance sheet and a constant rate of interest rate hikes. Her comments pointed out that rate moves could be higher than the standard increments of 0.25 percentage points.
“Presently, inflation is much too high and is subject to upside threats,” she stated in prepared remarks."
“The [Federal Open Market] Committee is willing to take stronger action if inflation and inflation anticipations indicators indicate warranted such action.”
The Fed already has agreed to one interest rate growth: a 0.25% climb at the March meeting, the first in almost three years and probably one of multiple to happen this year.
In addition, markets anticipate the Fed to lay out a plan at its May meeting for running down some of the almost $9 trillion in investments, primarily Treasurys and mortgage-backed securities, on its balance sheet. According to Brainard’s Tuesday comments, that process will be quick.