The Federal Reserve’s plans to gradually hike rates could pick up steam if financial imbalances continue to build, a Fed official said.
Speaking at an event in Detroit, Federal Reserve Governor Lael Brainard said that acceleration in inflation or distortions in the financial market could cause the Fed to accelerate the pace of its planned rate hikes, according to a CNBC report.
“While the information available to us today suggests that a gradual path is appropriate, we would not hesitate to act decisively if circumstances were to change,” Brainard said. “If, for example, underlying inflation were to move abruptly and unexpectedly higher, it might be appropriate to depart from the gradual path.”
Brainard’s speech echoed similar remarks from Fed Chairman Jerome Powell at a speech last month in Jackson Hole, Wyo. Powell said that the Federal Open Market Committee would do “whatever it takes” if “inflation expectations drift materially up or down or should crisis again threaten.”
While Brainard said that the overall progress of the economy is good, some parts of the financial markets were showing excesses, CNBC reported.
“The past few timed unemployment fell to levels as low as those projected over the next year, signs of overheating showed up in financial-sector imbalances rather than in accelerating inflation,” she said. “The Federal Reserve’s assessment suggests that financial vulnerabilities are building, which might be expected after a long period of economic expansion and very low interest rates.”