Fed's Brainard: Global 'crosscurrents' may hit US

Two key Federal Reserve officials said Monday they expect inflation to get closer to the central bank's target.

In separate prepared remarks in Washington, neither Fed Vice Chairman Stanley Fischer nor Gov. Lael Brainard made direct reference to next week's meeting of the Federal Open Market Committee. But Brainard argued for patience in rate increases amid possible risks that inflation and U.S. economic activity will fall.

"Tighter financial conditions and softer inflation expectations may pose risks to the downside for inflation and domestic activity. From a risk management perspective, this argues for patience as the outlook becomes clearer," Brainard said.

Both Fischer and Brainard vote on the Fed's policymaking committee, which will release its policy decision and outlook next week. The comments followed Friday's February jobs report, which showed the U.S. economy added a better-than-expected 242,000 jobs.

Federal Reseve's Stanley Fischer and Lael Brainard
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Federal Reseve's Stanley Fischer and Lael Brainard

Brainard expanded on her remarks in a CNBC interview Monday afternoon, saying the Fed needs to "preserve and protect" domestic progress while keeping an eye on developments abroad.

"As I look at our policy path forward, I'm focused on the U.S. economy. I'm focused on U.S. inflation, I'm focused on the U.S. labor market. But, we have seen a lot of powerful crosscurrents coming from abroad," Brainard said.

Their comments came after data late last month that showed core inflation rose 1.7 percent in the 12 months ended in January. Fischer noted that he has seen possible first signs of an inflation increase.

"We may well at present be seeing the first stirrings of an increase in the inflation rate — something that we would like to happen," Fischer said in his prepared remarks to the National Association for Business Economics.

In the earlier speech to the Institute of International Bankers, Brainard said she expects inflation to move back to the central bank's 2 percent target despite risks to the downside. She added that she was "heartened" by progress in employment. Brainard noted, though, that a tight labor market does not guarantee inflation will move toward the 2 percent target.

She told CNBC that, while the recent core inflation number was "encouraging," she wanted to see more consistent movement toward the inflation target. Brainard noted that the Fed has made "a lot of progress" toward achieving full employment, but has not yet seen enough movement toward its inflation goal.

"I'm going to be very focused on inflation, but I want to see a pattern. I want to see some persistence. That would give me comfort," she said.

Fischer said rates still remain low by historical standards. He added that the Fed may eventually face zero-rate conditions again.

Fischer also said empirical evidence has not yet shown that negative interest rates are not effective in Japan and Europe. He noted that central banks can still run "expansionary monetary policies" through bond buying and other measures, even at near-zero interest rates.

Market expectations for rate hikes have waned in recent months amid sluggish stock markets and fears of a global slowdown. Low oil prices have also dragged on inflation. The Fed raised interest rates from near zero percent in December, its first rate hike in nine years. Policymakers said at the time that they expected four rate hikes for 2016.