WASHINGTON, July 11 (Xinhua) -- U.S. Federal Reserve Governor Lael Brainard said on Tuesday that the central bank could start reducing its 4.5-trillion-U.S.-dollar balance sheet soon, while expressing her concerns about the low inflation in recent months.
"If the data continue to confirm a strong labor market and firming economic activity, I believe it would be appropriate soon to commence the gradual and predictable process of allowing the balance sheet to run off," said Brainard in a speech at a conference sponsored by the Columbia University and the Federal Reserve Bank of New York.
In its June meeting, the Fed raised interest rate and announced a plan to shrink its balance sheet. Federal Reserve Chair Janet Yellen said after the meeting that the central bank would start to reduce the balance sheet relatively soon if the economy performed in line with expectations.
Market analysts now expect the Fed might start the balance sheet reduction as early as in September.
Fed officials, including Yellen and Brainard, reiterated that interest rate would remain the primary tool for the central bank to adjust the stance of monetary policy. According to projections by Fed officials, there would be one more rate hike this year.
On Tuesday, Brainard expressed concerns over the low inflation in recent months, and would take a cautious approach in weighing on interest rate hike.
"Once that (balance sheet reduction) process begins, I will want to assess the inflation process closely before making a determination on further adjustments to the federal funds rate in light of the recent softness in core PCE (personal consumption expenditure) inflation," said Brainard.
In her speech, Brainard also discussed the impacts from rate hikes and balance sheet reduction on exchange rates and financial conditions globally.
She pointed out that interest rate hikes may have a greater impact on currency exchange rates than balance sheet reductions. Enditem
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