WASHINGTON, Jan. 17 (Xinhua) -- U.S. Federal Reserve Governor Lael Brainard said on Tuesday that the central bank may accelerate interest rate hikes, if new fiscal policy mix introduced by the new Administration and Congress boosts inflation.
"If fiscal policy changes lead to a more rapid elimination of slack, policy adjustment would, all else being equal, likely be more rapid than otherwise," said Brainard at an event held by the Brookings Institution.
U.S. President-elect Trump has promised to cut taxes and increase infrastructure and defense spending, which could boost inflation level as many economists estimate.
Although there is still great uncertainty around the new fiscal stimulus, the prospect of a material increase in fiscal stimulus could lift up inflation, especially considering the economy is close to full employment, she warned.
"Against the backdrop of deficient demand abroad, if more expansionary fiscal policy here at home raises expectations of a growing divergence between the U.S. and other economies, upward pressure on the exchange rate will likely result," said Brainard.
She said that a strong dollar could lead to spillover of demand across borders, weighing on U.S. exports, investment, and manufacturing activity.
However, she noted that near-term risks in the U.S. economy are balanced, as the unemployment and inflation eventually move closer to the Fed's targets, and there is possibility that the new Administration and Congress would increase fiscal stimulus.
"A gradual approach (in raising interest rates) will remain appropriate as long as inflationary pressures remain muted," said Brainard.
New York Fed President William Dudley also said on Tuesday that he was optimistic that the U.S. economy will continue expansion over the next few years, because inflation still remained at low level and household' s financial condition has improved over the years.
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