Fed’s Brainard: Additional Stimulus Required To Counter Pandemic Effects

A Federal Reserve governor said Tuesday (Sept. 1) that the central bank has to launch initiatives “in coming months” to assist the economy in surmounting the pandemic’s effects, while meeting the pledge of more formidable employment expansion and greater inflation, Reuters reported.

Lael Brainard is one of the designers behind the framework for a new long-term game plan the Fed accepted last week. She is reportedly the first leader at the Fed to directly connect that strategy to a need for additional monetary stimulus.

“With the recovery likely to face COVID-19-related headwinds for some time, in coming months, it will be important for monetary policy to pivot from stabilization to accommodation,” Brainard said in a Brookings Institution webcast, according to remarks posted online. “It will be important to provide the requisite accommodation to achieve maximum employment and average inflation of 2 percent over time, following persistent underperformance.”

Additionally, the official pointed out that decisions in the past to increase interest rates at the time of declining unemployment despite low inflation was “an unwarranted loss of opportunity” for a number of Americans.

In July, Federal Reserve Chair Jerome Powell said the path to economic recovery is “extraordinarily uncertain” and will be very much shaped by how effectively the nation keeps the pandemic in check.

“Indeed, we have seen some signs in recent weeks that the increase in virus cases and the renewed measures to control it are starting to weigh on economic activity,” Powell said in a press conference after a two-day meeting in which the central bank elected to not change its key funds rate.

Powell said in his remarks that some consumer spending measures based on debit and credit card use had fallen as of late June. Also, labor market indicators pointed to slowing in employment growth, especially among smaller companies.

“A full recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities,” Powell said at the time.