Brainard says it will 'soon' be time for balance sheet run off

GETTYThe pound is at the whim of comments from Bank of England policymakers

GETTYThe pound is at the whim of comments from Bank of England policymakers

Today, Federal Reserve Governor Lael Brainard will deliver a keynote address at the Conference on Normalizing Central Banks' Balance Sheets in New York City at 12.30 pm ET.

"I consider normalization of the federal funds rate to be well under way", Brainard said at a conference in NY, according to prepared text released by the Fed.

"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", Brainard said.

Brainard, however, added a dovish note to her prediction for balance sheet normalization - that the Fed may "not have much more" to do in terms of rate hikes.

The Fed will increase those caps by $6 billion every three months, until the bank is selling off $30 billion in Treasury bonds and $20 billion in debt each month.

Brainard suggested that she would support a move soon to begin paring the Fed's $4.5 trillion balance sheet, which swelled to five times its previous size after the Fed bought Treasury and mortgage bonds to hold down long-term borrowing rates in the aftermath of the 2008 financial crisis. After rate hikes in December 2015 and December 2016, the Fed raised rates again in March, as unemployment and inflation hovered around the bank's target ranges.

The report said the Fed "expects that the ongoing strength of the economy will warrant gradual increases in the federal funds rate", referring to its benchmark short-term rate. The current funds target is 1 percent to 1.25 percent.

Brainard said the Fed's policy rate - now in a target range of 1 percent to 1.25 percent - was not far from its neutral level that would neither stimulate nor hold back economic growth. She is expected to say that even though inflation has slowed further below the Fed's target level, the job market appears healthy enough to justify slightly higher borrowing costs. Once that 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 expenditures) inflation.

"We would not have much more additional work to do on moving to a neutral stance", said Brainard, who had been cautious about hiking rates before supporting the Fed's past three increases.

Brainard's comments come ahead of this week's testimony that Yellen will deliver to Congress on Wednesday and Thursday.

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