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Improvement in the labor market, one of the Fed's key focus
areas, has been "extremely steady" and slack in the economy has
been reduced but core inflation is below target, Brainard, a
voting member of the Federal Open Market Committee, said.
The U.S. central bank kept interest rates steady last week but
left a December hike firmly in play, downplaying recent global
financial market turmoil and arguing that the U.S. labor market
was healing despite a slower pace of jobs growth.
The Fed has been hesitant in hiking rates but tried to dispel
market scepticism about its plans last week, arguing that even
slower hiring was still enough to get it closer to its goal of
maximum employment and thus a rise in borrowing costs.
"There are certain aspects of the U.S. outlook that are
encouraging. The improvement in the labor market has been
extremely steady," said Brainard, who last month argued that the
Fed should hold off until it was clear that a global slowdown
would not push the U.S. recovery off course.
"There are still margins of slack in the U.S. labor force but
we've certainly made some progress there," Brainard told a
conference organized by the European Central Bank.
But wage growth has not been in line with the rise in
employment, Brainard said, calling this trend puzzling. She
noted that core inflation has remained below target and needed
to be carefully monitored.
Brainard also singled out the dollar's appreciation over the
past year, which has led to a "material" tightening of
conditions.
"If you look at the cross currents, and one measure of those is
the extent to which the currency has appreciated as expectations
of divergence have grown, we have seen about 50 percent broad
real appreciation in the exchange rate over the past year, which
is a drag on prices and exports," she added.
"We've already seen by that measure some material tightening in
the United States.”
(Writing by Balazs Koranyi; Editing by Catherine Evans)
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