Lael Brainard: Navigating cautiously

Speech by Ms Lael Brainard, Member of the Board of Governors of the Federal Reserve System, at the Julis-Rabinowitz Center for Public Policy and Finance and the Bendheim Center for Finance, Woodrow Wilson School of Public and International Affairs, Princeton University, Princeton, New Jersey, 7 March 2019.

The views expressed in this speech are those of the speaker and not the view of the BIS.

While our economy continues to add jobs at a solid pace, demand appears to have softened against a backdrop of greater downside risks. Prudence counsels a period of watchful waiting-especially with no signs that inflation is picking up. With balance sheet normalization now well advanced, it will be appropriate to wind down asset redemptions later in the year.

The Modal Outlook

Let me start by discussing prospects for the U.S. economy. Policymakers tend to distinguish the most likely path, which I will refer to as the "modal" outlook, from risks around that path-events that are not the most likely to happen, but that have some probability of happening and that, if they do materialize, would have a one-sided effect. Both the modal outlook and the risks around it have important implications for monetary policy, but in somewhat different ways.

Let me first discuss the modal outlook. While the economy performed very well last year, I have revised down my modal outlook for this year, in part reflecting some softening in the recent spending and sentiment data.