Fed looks unlikely to hike next week after Brainard warning

Mon Sep 12, 2016 11:04pm EDT
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By Jason Lange and Karen Pierog

CHICAGO (Reuters) - The Federal Reserve should avoid removing support for the U.S. economy too quickly, Fed Governor Lael Brainard said on Monday in comments that solidified the view the central bank would leave interest rates unchanged next week.

Brainard said she wanted to see a stronger trend in U.S. consumer spending and evidence of rising inflation before the Fed raises rates, and that the United States still looked vulnerable to economic weakness abroad.

"Today's new normal counsels prudence in the removal of policy accommodation," Brainard, one of six permanent voters on the Fed's rate-setting committee, told the Chicago Council on Global Affairs.

She said the U.S. labor market was not yet at full strength, which means "the case to tighten policy preemptively is less compelling."

Brainard did not comment on the specific timing of future rate policy changes but she held firm in arguing for caution in what could be the last word from a Fed policymaker before the central bank's Sept. 20-21 meeting.

Policymakers will go into the meeting divided, with some concerned current low rates will fuel a surge in inflation while another camp, which includes Brainard, has argued that the Fed should not rush to raise rates.

Many other policymakers think the U.S. job market is near full strength and Fed Chair Janet Yellen argued in July the case for rate increases has strengthened.

"I think circumstances call for a lively discussion next week," said Atlanta Fed President Dennis Lockhart, who will not be a voter at next week's policy review but will participate in discussions.   Continued...

Federal Reserve Governor Lael Brainard delivers remarks on "Coming of Age in the Great Recession" at the Federal Reserve's ninth biennial Community Development Research Conference focusing on economic mobility in Washington April 2, 2015. REUTERS/Yuri Gripas