Fed's Brainard signals support for rate cut

FILE PHOTO: Federal Reserve Board Governor Lael Brainard speaks at the John F. Kennedy School of Government at Harvard University in Cambridge, Massachusetts, U.S., March 1, 2017. REUTERS/Brian Snyder/File Photo

(Reuters) - Federal Reserve Governor Lael Brainard, an influential member of the U.S. central bank’s policy-setting panel, on Thursday signaled support for an interest rate cut to guard against the risks posed by soft inflation and uncertainty around trade and global growth.

Though the outlook for economic growth is “solid,” boosted by consumer spending, business spending has been “lackluster” and sentiment has been soft, Brainard said. Allowing inflation to run below the Fed’s 2% goal for too long, she said, could entrench lower inflation expectations in the future and make it harder for the Fed to effectively cushion the economy with rate cuts when needed.

“Taking into account the downside risks at a time when inflation is on the soft side would argue for softening the expected path of monetary policy according to basic principles of risk management,” Brainard said in remarks prepared for delivery to the Community Bankers Roundtable in Scranton, Pennsylvania. “Of course, my judgment about the actual path of policy will continue to be influenced by the evolution of the data and the risks.”

A few policymakers at regional Fed banks, including Philadelphia Fed President Patrick Harker who was hosting Brainard on Thursday, have withheld support for cutting interest rates, citing unemployment near 50-year lows and inflation that, while below the Fed’s 2% goal, has shown recent signs of firming.

But Fed Chairman Jerome Powell has in two days of testimony on Capitol Hill bolstered expectations of a rate cut at the Fed’s next meeting. The goal: to inoculate the world’s biggest economy against the risk that weakening global growth and continued trade tensions between the United States and major trading partners including China will continue to sap investment and business confidence, crimping growth.

At its June meeting, many policymakers expressed the view that stimulus would be needed soon, according to the minutes from that meeting released on Wednesday.

Reporting by Ann Saphir; Editing by Diane Craft