Investing.com - Federal Reserve Board Governor Lael Brainard said Tuesday the U.S. central bank should be cautious in removing accommodative monetary policies because of a shallow business upturn.
"The lower neutral rate means the normalization of the federal funds rate is likely to follow a more gradual and shallower path than in previous cycles, although the actual path will be determined by economic conditions," Brainard said in a speech prepared for the Stanford Institute for Economic Policy Research.
Brainard, who as a board member is a permanent voter on the policymaking Federal Open Market Committee, cited a variety of reasons the lower neutral rate is lower, including weaker foreign demand growth, greater risk sensitivity, higher risk premiums for productive investment, and lower growth in potential output.
The Federal Reserve will make its latest review of policy on December 15 and 16.
The FOMC has "more space to respond by raising rates if inflationary forces accelerate than by cutting rates if disinflationary forces emerge," Brainard pointed out.
Therefore, the committee "should be cautious about raising rates, do so gradually, and carefully assess the effects on economic and financial conditions as we go."