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Brainard, Lael on 2018 March 6 at 10:34

We do not have extensive experience with an economy at very low unemployment rates and cannot be sure how it might evolve. In particular, we will want to remain attentive to the risk of financial imbalances... Continued gradual increases in the federal funds rate are likely to remain appropriate to ensure inflation rises sustainably to our target and to sustain full employment...

Many of the forces that acted as headwinds to U.S. growth and weighed on policy in previous years are generating tailwinds currently. Today many economies around the world are experiencing synchronized growth, in contrast to the 2015­-16 period when important foreign economies experienced adverse shocks and anemic demand... The upward revisions to the foreign economic outlook are also pulling forward expectations of monetary policy tightening abroad and contributing to an appreciation of foreign currencies and increases in U.S. import prices.   In recent quarters, the combination of higher oil prices and robust global demand has been providing strong support to business investment--in contrast to the sharp pullback from 2015 to 2016... Financial conditions are currently supportive of economic growth despite the recent choppiness in financial markets and some tightening since the beginning of the year. Various measures of equity valuations remain elevated relative to historical norms even after recent movements, and corporate bond spreads remain quite compressed... The most notable tailwind is the shift in America's fiscal policy stance from restraint to substantial stimulus in an economy close to full employment... Estimates suggest that December's tax legislation could boost the growth rate of real gross domestic product (GDP) as much as 1/2 percentage point this year and next. On top of that, the recently agreed-to budget deal is likely to raise federal spending by around 0.4 percent of GDP in each of the next two years.
... [W]e do not have extensive experience with an economy at very low unemployment rates and cannot be sure how it might evolve. In particular, we will want to remain attentive to the risk of financial imbalances...We will need to be vigilant... Continued gradual increases in the federal funds rate are likely to remain appropriate to ensure inflation rises sustainably to our target and to sustain full employment, keeping in mind that interest rate normalization is well under way and balance sheet runoff is set to reach its steady-state pace later this year. Brainard, Lael

Money Marketeers of NYU

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