Uncertainty about economic growth in China, Canada, and elsewhere outside the U.S. is reason enough for the Federal Reserve to delay raising interest rates, a Fed official said Monday.
“I view the risks to the economic outlook as tilted to the downside,” Federal Reserve governor Lael Brainard said Monday in an address to business economists in Washington.
“The downside risks make a strong case for continuing to carefully nurture the U.S. recovery, and argue against prematurely taking away the support that has been so critical to its vitality,” Brainard said in prepared remarks.
Brainard, who as a member of the Fed’s Board of Governors has a vote in each of its monetary policy decisions, used her comments to make the case against the Fed rushing to tighten monetary policy. In doing so, she appeared to set herself apart from Chairwoman Janet Yellen and others who have suggested that the time could be right for the Fed to raise rates this year, after targeting them near zero since 2008.
Brainard said she was presenting the case for “watching and waiting” for signs that the Fed is on track to meet its goals of low unemployment and stable prices.
Unlike Yellen, she is not convinced that falling unemployment is likely to translate to higher inflation given current conditions, and is concerned about the Fed getting inflation to rise to its 2 percent inflation goals.
Those fears are compounded by what she termed “deflationary cross currents emanating from abroad.”
Weakness in China, and related economic problems in Canada, Mexico, and other countries that sell goods and commodities to China, could weigh down on the U.S., she warned. U.S. exports to those countries could slow further, and the dollar could rise more. Both of those factors would weigh down on U.S. inflation.
The Fed is expected to meet next week to deliberate on monetary policy at the end of the month. Most investors do not expect the central bank to raise rates then, but instead are gauging whether such a move is likely at the December meeting.
