Fed’s Brainard Says Balance Sheet Trim Could Start In June

Fed's Brainard Says Balance Sheet Trim Could Start In June

By Lindsay Dunsmuir and Ann Saphir

(Reuters) -Federal Reserve Governor Lael Brainard on Tuesday said the U.S. central bank could start to trim its balance sheet in June, which along with a series of interest rate hikes will help bring down 40-year-high inflation.

“In terms of exactly what the right pace of that set of increases in the policy rate from meeting to meeting, I don’t really want to focus on that,” Brainard told the Wall Street Journal in an interview. “But I would just say the combined effect will bring the policy stance to more neutral posture expeditiously later this year.”

Once there, she said, the Fed will have “optionality” to then respond as needed to developments in the labor market and inflation.

The Fed last month raised interest rates for the first time in three years and policymakers have signaled they could accelerate the pace of interest rate hikes this year. It is also expected to announce a start to reducing its balance sheet as soon as next month.

Brainard said a moderation in “core goods” inflation – which doesn’t include the sharp increases in energy and food prices, or inflation in the price of services — is a “welcome” signal.

“I’ll be looking to see whether we continue to see moderation in the months ahead,” Brainard said. She also said she expects demand to moderate this year as fiscal support moderates and supply constraints ease.

(Reporting by Ann Saphir and Lindsay Dunsmuir; Editing by Chizu Nomiyama)