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Fed’s Brainard Urges Caution Before Rate Move

(Kitco News) - She’s known as one the Fed’s most dovish doves, and Monday Fed Gov. Lael Brainard didn’t break from her norm as she suggested caution before going through with a rate hike.

Lael Brainard

In a closely watched speech, Brainard warned against moving too fast. In her speech, she said that she remains concerned about the impact that global difficulties will have on the U.S. economy. Specifically, she pointed to emerging markets, particularly China, as areas of worry.

"Foreign consumption and investment are weak, while foreign demand for savings is high, along with an elevated demand for safe assets," Brainard said. 

But not all were surprised by Brainard’s remarks.

“Lael Brainard is known to be one of the Fed's uber doves, so the shocker would have been if she had come down squarely on the side of a rate hike soon. Instead, her more cautious comments are much less newsworthy,” said CIBC’s economist Avery Shenfeld. 

Shenfeld added, “Add it up, and Brainard is sticking to her guns in not seeing the need to move soon, and it would take a lot for her to be on board in December either. So while markets might react a bit, this really only positions Brainard where she already was on the FOMC's dove-hawk spectrum.”

CIBC retains its call for the next hike to be in December.

The Federal Open Market Committee last enacted a rate hike in December 2015 — the first one in more than nine years.

Earlier this morning, presidential candidate Donald Trump said the Fed is being pressured by the White House to keep rates low.

The Dow Jones industrial average briefly advanced more than 150 points after Brainard's speech, before holding about 100 points higher. The S&P 500 traded about 0.7 percent higher. December gold futures moved lower on the news, last trading at $1,326.90 an ounce, down 0.57% on the day.

Based on CME's Fed Watch Tool, markets are pricing in a lower chance of a rate hike in September at 15%, down from the previous day's forecast of 24%.

By Daniela Cambone of Kitco News;



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