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CNBC Exclusive: CNBC Transcript: Federal Reserve Governor Lael Brainard Speaks with CNBC’s Sara Eisen Today

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WHEN: Today, Friday, April 20, 2018

WHERE: CNBC's "Power Lunch" – Live from the IMF Spring Meetings in Washington D.C.

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Federal Reserve Governor Lael Brainard and CNBC's Sara Eisen on CNBC's "Power Lunch" (1PM – 3PM) today, Friday, April 20th. Following is a link to video from the interview on CNBC.com: https://www.cnbc.com/video/2018/04/20/were-seeing-synchronized-global-growth-fed-gov-lael-brainard.html?play=1.

All references must be sourced to CNBC.

EISEN: WELCOME BACK TO "POWER LUNCH." I'M SARA EISEN AT THE IMF SPRING MEETINGS IN WASHINGTON, HERE WITH AN IMPORTANT EXCLUSIVE INTERVIEW FOR YOU, FEDERAL RESERVE GOVERNOR LAEL BRAINARD. NICE TO SEE YOU GOVERNOR.

LAEL BRAINARD: NICE TO BE HERE.

EISEN: THANKS FOR TAKING THE TIME. YOU KNOW, THE BACKDROP IS THE U.S. ECONOMY IS SET TO HAVE ITS BEST GROWTH IN YEARS AND YET PEOPLE SEEM A LITTLE BIT WORRIED ABOUT THE OUTLOOK. IS THIS AS GOOD AS IT GETS?

BRAINARD: WELL, I THINK THAT WE ARE SEEING SYNCHRONIZED GROWTH AROUND THE WORLD. I THINK FINANCIAL OFFICIALS FROM AROUND THE WORLD ARE BREATHING A LITTLE EASIER. IT'S NICE TO SEE THE RECOVERY REALLY GAINING TRACTION. HERE IN THE U.S. IT'S BEEN GROWING WELL NOW FOR THE LAST YEAR AND A HALF. BUT IN OTHER COUNTRIES, THEY'RE REALLY STARTING TO SEE THAT GROWTH TAKING HOLD. BUT, OF COURSE, I DON'T THINK ANYBODY CAN AFFORD TO LET THEIR GUARD DOWN BECAUSE THERE ARE RISKS OVER THE HORIZON AND SO PEOPLE ARE LOOKING AT THOSE RISKS AND MAKING SURE THAT WE'RE GUARDING AGAINST ANY KINDS OF DOWNSIDE RISK TO THE OUTLOOK.

EISEN: WHAT'S THE BIGGEST RICK IN YOUR ESTIMATION?

BRAINARD: SO, I THINK IN THE U.S., GENERALLY SPEAKING, WE HAVE SEEN GOOD GROWTH. WE'VE SEEN THE LABOR MARKET CONTINUING TO TIGHTEN. PEOPLE COMING BACK IN TO THE JOB MARKET. INFLATION IS MOVING TOWARDS TARGET. ALL OF THOSE THINGS, I THINK, ARE VERY ENCOURAGING. BUT WE'VE ALSO SEEN THE ADDITION OF VERY SUBSTANTIAL FISCAL STIMULUS IN RECENT MONTHS. AND THAT KIND OF SIZABLE FISCAL STIMULUS AT THIS POINT IN THE CYCLE IS UNUSUAL AND SO, YOU KNOW, WE'LL HAVE TO SEE. WE'RE AT A TIME WHEN WE ARE GROWING ABOVE TREND AND RESOURCE UTILIZATION IS TIGHTENING, WE WANT TO MAKE SURE THAT WE DON'T SEE ANY IMBALANCES DEVELOPING. AROUND THE WORLD, DIFFERENT -- DIFFERENT COUNTRIES ARE LOOKING OVER THEIR SHOULDERS AT DIFFERENT RISKS OBVIOUSLY, TRADE IS ONE THAT AFFECTS EVERYBODY.

EISEN: YEAH, HOW DO YOU FACTOR IN WHAT A TRADE WAR COULD DO FOR GROWTH IN THE UNITED STATES?

BRAINARD: YEAH, SO RIGHT NOW I THINK IT'S VERY HARD TO SAY HOW CURRENT DISCUSSIONS MIGHT EVOLVE. VERY TARGETED MEASURES AND NEGOTIATIONS THAT RESULT IN OPENINGS, OF COURSE I THINK WOULD NOT BE A MATERIAL FACTOR FOR THE OVERALL OUTLOOK. BUT IF WE SAW BROADENING AND RETALIATORY MEASURES REALLY SPREADING THAT COULD DENT GLOBAL CONFIDENCE. IT COULD DISRUPT GLOBAL SUPPLY CHAINS. AND SO IT'S CERTAINLY AN UNCERTAINTY, A MATERIAL UNCERTAINTY TO THE OUTLOOK.

EISEN: I WAS GOING TO SAY THERE IS ALREADY AN UNCERTAINTY AS TO WHETHER THESE TARIFFS ARE GOING TO PLAY OUT. DO YOU SEE IT ALREADY STARTING TO HAVE AN IMPACT POTENTIALLY ON INVESTMENT, CONFIDENCE, AND SPENDING DECISIONS FROM BUSINESS?

BRAINARD: SO RIGHT NOW, I THINK THE DISCUSSIONS OVER TRADE ARE REALLY ONES THAT MAY BE IMPACTING INDIVIDUAL BUSINESSES. I SEE IT REALLY AS AN UNCERTAINTY TO THE OUTLOOK. BUT OF COURSE, A BROADENING, AND BROADER RETALIATORY KIND OF ENVIRONMENT, THAT COULD GET US INTO A MORE COMPLICATED SITUATION THAT COULD AFFECT GLOBAL CONFIDENCE. BUT THAT'S NOT WHERE WE ARE TODAY.

EISEN: WHAT WOULD IT DO TO INFLATION?

BRAINARD: SO, IN TERMS THE INFLATION OUTLOOK, YOU KNOW, WHEREAS WE WERE SEEING A DISCONNECT A YEAR AGO BETWEEN THE STRENGTHENING LABOR MARKET AND INFLATION THAT HAD REMAINED BELOW TARGET FOR MANY YEARS, TODAY ACTUALLY INFLATION IS MOVING MORE INLINE WITH WHAT ONE WOULD EXPECT AT THIS POINT, AND IN FACT THERE I THINK WE ARE LOOKING CAREFULLY AT INFLATION AND EXPECTING TO SEE IT MOVE TOWARDS TARGET INLINE WITH OUR OBJECTIVES.

EISEN: FEELS LIKE WE'RE – THE MARKET IS PRICING IN RISING INFLATION EXPECTATIONS. WE'VE SEEN BOND YIELDS JUMP, TEN-YEAR IS MOVING TOWARD 3%. QUESTION IS, CAN – DO YOU HAVE CONFIDENCE THAT IT CAN REMAIN BENIGN, THE HEALTHY TYPE OF INFLATION?

BRAINARD: YEAH, SO RIGHT NOW I THINK THE ECONOMIC OUTLOOK IS QUITE SOLID. AGAIN, WE'VE BEEN GROWING ABOVE TREND. WE'VE SEEN THAT THE LABOR MARKET HAS MOVED TOWARDS FULL EMPLOYMENT. THERE'S SOME INDICATIONS THAT RESOURCE UTILIZATION IS TIGHTEN. BUT WE'VE EXPERIENCED MANY YEARS OF INFLATION BELOW TARGET, AND SO IT'S I THINK JUST BEGINNING TO MOVE TOWARDS TARGET, WHICH IS VERY CONSISTENT WITH OUR DUAL MANDATE GOALS.

EISEN: WHAT ABOUT HOUSING? WE'VE ALREADY STARTED TO SEE MORTGAGE RATES JUMP. ARE YOU WORRIED THIS COULD DENT THAT RECOVERY?

BRAINARD: YEAH SO AS WE LOOK ACROSS -- AS WE SCAN THE DEVELOPMENT OF RISE THAT IS MAY BE DEVELOPING AT THIS POINT IN THIS CYCLE, THERE ARE TWO AREAS THAT I WOULD SAY HAVE CAUGHT MY EYE. ONE IS THAT ASSET VALUATIONS ARE SOMEWHAT STRETCHED. IF YOU LOOK RELATIVE TO ANY KIND OF HISTORICAL BENCHMARKS –

EISEN: ARE YOU TALKING ABOUT STOCKS?

BRAINARD: AND THE ASSET VALUATION PICTURE IS BROAD IN TERMS OF ELEVATED VALUES, BUT THERE ARE PARTICULAR AREAS FOR INSTANCE, JUNK BOND SPREADS, LEVERAGED LOAN SPREADS ARE QUITE TIGHT BY HISTORICAL STANDARDS. AND IF YOU LOOK AT BORROWING IN THE ECONOMY, IT'S MODERATE ACTUALLY OVERALL. THE HOUSEHOLD SECTOR REMAINS QUITE MODERATE COMPARED TO HISTORICAL STANDARDS BECAUSE HOUSEHOLDS HAD ONLY JUST REALLY COMPLETED DELEVERAGING IN MANY CASES. SO IF THERE ARE ANY SIGNS OF DEVELOPING IMBALANCES ON THE LEVERAGE FRONT THEY'D BE MORE ON THE CORPORATE SECTOR, WHERE WE DO SEE SIGNS OF LEVERAGE.

EISEN: THERE'S THIS VIEW OUT THERE THAT THE FEDERAL RESERVE MAY HAVE TO BE MORE AGGRESSIVE THAN THE THREE INTEREST RATE THIS YEAR – HIKES THAT HAVE ALREADY BEEN FORECAST. HOW FLEXIBLE DO YOU THINK YOU ARE GOING TO BE BASED ON THE INFLATION EXPECTATIONS THAT ARE STARTING TO RISE?

BRAINARD: I WILL BE VERY FOCUSED ON THE INCOMING DATA. AGAIN, SO FAR WE'VE SEEN GROWTH COMING IN A LITTLE BIT SOFTER THAN EXPECTED, PERHAPS, IN THE FIRST QUARTER. BUT WE'VE SEEN THAT BEFORE AND WE'RE COMING OFF A STRONG FOURTH QUARTER. WE'RE SEEING MOMENTUM PICKING UP. AND SO, YOU KNOW, MY ANTICIPATION IS THE OUTLOOK IS FOR CONTINUED SOLID GROWTH. AND, AGAIN, YOU KNOW, WE'RE ALREADY IN THE RANGE OF FULL EMPLOYMENT. INFLATION IS MOVING BACK TOWARDS OUR TARGET. THE OUTLOOK LOOKS CONSISTENT TO ME WITH CONTINUED GRADUAL INCREASES IN THE FEDERAL FUNDS RATE. BUT OF COURSE WE'LL HAVE TO CONTINUE TO WATCH THE INCOME DATA CAREFULLY AS WE MAKE THAT ASSESSMENT.

EISEN: I WANTED TO ASK YOU ABOUT COMMODITY PRICES WHICH ARE ALSO STARTING TO MAKE A MOVE. HIGHER OIL PRICES BACK AT MULTI-YEAR HIGHS. ALUMINUM, COCOA, LUMBER. ARE WE GETTING TO THE POINT WHERE THIS IS GOING TO AFFECT CONSUMER SPENDING AND GROWTH?

BRAINARD: YEAH, SO AS I LOOK AT COMMODITY PRICES, IN MANY RESPECTS AS PART OF A BROADER PICTURE WE SAW REAL HEADWINDS A FEW YEARS AGO. AND NOW WE'RE SEEING SOME OF THOSE HEAD WINDS -- THOSE HEAD WINDS THAT INCLUDED A REAL DROP OF DRILLING AND MINING IN THE OIL SECTOR FOR INSTANCE TURNING INTO TAILWINDS FOR THE U.S. ECONOMY. SO WHEN I LOOK AT COMMODITY PRICES, I SEE THOSE AS SIGNS OF STRENGTHENING GLOBAL DEMAND. BUT, AGAIN, IF YOU LOOK AT THE INFLATION PICTURE IN THE U.S. ECONOMY, YOU KNOW, WE'RE COMING OFF A PERIOD WHERE INFLATION EXPECTATIONS HAD BEEN QUITE LOW, AND WHERE IT –

EISEN: SO $68 OIL SOUNDS LIKE IT DOESN'T BOTHER YOU – THAT'S A GOOD THING?

BRAINARD: YEAH, SO AS I LOOK ACROSS THE U.S. ECONOMY, I SEE DEMAND HAVING STRENGTHENED. AND AGAIN, I THINK, YOU KNOW, WE'LL WATCH INFLATION OF COURSE VERY CAREFULLY. BUT RIGHT NOW INFLATION SEEMS TO BE MOVING AS ONE WOULD EXPECT AND MOVING TOWARDS TARGET AFTER A LONG PERIOD OF BEING WELL BELOW TARGET.

EISEN: WE'VE SEEN SOME PRETTY WILD VOLATILITY LATELY IN THE STOCK MARKET. DO YOU SEE THAT AS HEALTHY, RETURN TO NORMAL, OR SOMETHING MORE OMINOUS?

BRAINARD: SO I THINK AS WE LOOK ACROSS THE VARIOUS AREAS OF VULNERABILITY IN THE U.S. ECONOMY, IT'S CERTAINLY THE CASE THAT WE HAVE SEEN SOME CHOPINESS IN SOME MARKETS IN RECENT MONTHS. BUT WE HAVE TO RECALL THAT WAS COMING OFF A PERIOD OF EXTREMELY LOW VOLATILITY FOR A VERY PROTRACTED PERIOD OF TIME.

EISEN: SO YOU'RE NOT WORRIED ABOUT THAT?

BRAINARD: NOT -- I WOULD SAY GENERALLY AS I LOOK ACROSS, AGAIN, FINANCIAL VULNERABILITIES, I'M KEEPING TRACK OF ASSET VALUATIONS WHICH HAVE BEEN STRETCHED EVEN TAKING INTO ACCOUNT RECENT MOVEMENTS. I'M CERTAINLY FOCUSED ON RISING INDEBTEDNESS IN THE CORPORATE SECTOR. BUT, YOU KNOW, THAT'S IN A BROADER PICTURE, WHERE OUR BANKS ARE SO MUCH BETTER CAPITALIZED, AND MORE CAREFULLY MANAGING THEIR LIQUIDITY, AND WE HAVE IN PLACE A SYSTEM OF VERY ROBUST LIQUIDITY AND CAPITAL BUFFERS. SO THE RESILIENCE OF THE FINANCIAL SYSTEM I THINK IS AN OFFSETTING FACTOR THAT'S VERY IMPORTANT.

EISEN: FINALLY, WE ARE STARTING TO SEE THE TRUMP FEDERAL RESERVE TAKE SHAPE. HE'S MADE A NUMBER OF NOMINATIONS. YOU'RE THE LAST REMAINING OBAMA FED GOVERNOR I THINK ON THE BOARD. HOW IS THIS FED DIFFERENT UNDER POWELL VERSUS YELLEN AND NOW THAT WE'RE STARTING TO LEARN WHO ELSE IS GOING TO COME ON BOARD?

BRAINARD: AS YOU KNOW, THE FEDERAL RESERVE INSTITUTIONALLY HAS A VERY STRONG SET OF MANDATES THAT ARE GIVEN TO US BY CONGRESS. AND WE STEER BY THOSE MANDATES, OUR STATUTORY OBJECTIVE THAT CONGRESS GIVES US. SO IN THAT SENSE THERE IS A HIGH DEGREE OF CONTINUITY. AND I ANTICIPATE THERE WILL CONTINUE TO BE.

EISEN: POLICY CONTINUITY, TOO?

BRAINARD: AGAIN, BECAUSE WE WORK UNDER A GUIDANCE THAT'S GIVEN TO US BY CONGRESS, YOU KNOW, WE HAVE VERY CLEAR STATUTORY OBJECTIVES, FULL EMPLOYMENT, PRICE STABILITY. AND THOSE ARE THE THINGS THAT REALLY DETERMINE OUR POLICY COURSE.

EISEN: WELL, THANK YOU FOR COMING HERE AND SHARING SOME OF YOUR THOUGHTS.

BRAINARD: THANK YOU.

EISEN: I KNOW THIS A FAMILIAR PLACE FOR YOU, FORMER UNDERSECRETARY FOR INTERNATIONAL AFFAIRS, LAEL BRAINARD, WHO IS NOW FEDERAL RESERVE GOVERNOR. AND WITH THAT I WILL SEND IT BACK TO YOU GUYS IN THE STUDIO. MELISSA.

For more information contact:

Jennifer Dauble
CNBC
t: 201.735.4721
m: 201.615.2787
e: jennifer.dauble@nbcuni.com

Emma Martin
CNBC
t: 201.735.4713
m: 551.275.6221
e: emma.martin@nbcuni.com

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