By David Harrison
Federal Reserve governor Lael Brainard said Thursday that easier monetary policy was justified in light of growing risks to the economic outlook and weak inflation. She also said high levels of risky corporate debt should prompt the Fed to take more action to regulate financial institutions.
"Taking into account the downside risks at a time when inflation is on the soft side would argue for softening the expected path of monetary policy," she said in remarks prepared for a speech in Scranton, Pa.
She also pointed to high levels of corporate debt, which "suggest financial imbalances are growing." She said the Fed should activate its countercyclical capital buffer, a program that raises capital requirements on some banks during times of elevated risk. She also called for "more rigorous use of stress tests and active monitoring of leveraged lending."
Ms. Brainard cited "lackluster" capital spending on the part of businesses as well as uncertainty around the global economy and trade as sources of risk. Fiscal policy also is contributing to the uncertainty, she said, "with both the debt ceiling and the federal budget needing to be resolved."
Nevertheless, Ms. Brainard said the economy is "growing solidly," pointing to the strong labor market and upbeat consumer confidence.
Ms. Brainard is the latest among a chorus of Fed officials suggesting the central bank could cut interest rates perhaps as early as its July 30-31 meeting. In testimony on Capitol Hill Wednesday and Thursday, Fed Chairman Jerome Powell said weaker-than-expected inflation as well as concerns over trade and global growth "strengthened the case for a somewhat more accommodative policy."
Earlier Thursday, New York Fed President John Williams also said a rate cut would be appropriate. "The arguments for adding policy accommodation have strengthened over time," he said.
Investors see a 100% probability of a rate cut at the July meeting, according to data from CME Group.
(END) Dow Jones Newswires
July 11, 2019 17:44 ET (21:44 GMT)
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