Federal Reserve Governor Lael Brainard struck a more hawkish tone in a New York speech, suggesting she could support a quicker path for interest rate increases this year.
Brainard, who is viewed as leaning dovish — preferring low interest rates that would bolster growth — said factors that had previously been holding back U.S. growth are now "generating tailwinds," noting that countries across the world are also growing, business investments are rising and U.S. fiscal policy has now become stimulative.
"In the earlier period, strong headwinds sapped the momentum of the recovery and weighed down the path of policy," she said, according to prepared remarks. "Today, with headwinds shifting to tailwinds, the reverse could hold true."
The Federal Open Market Committee signaled in December 2017 it was eyeing three interest rate increases this year. Its next round of projections comes out in two weeks.
Inflation remains below the Fed's 2% target and is still "stubbornly low," Brainard said. As other Fed officials have done, she attributed this partly to temporary factors but noted several analyses point to more "persistent factors" keeping inflation weak. Fed Chairman Jerome Powell last week said one of those could be the "Amazon effect," where competition from the online retailer helps hold prices down.
Still, she said, the tailwinds that are furthering growth "may help re-anchor inflation expectations" at the Fed's 2% goal and could even lead to a temporary overshoot of that target.
"Although last year we faced a disconnect between the continued strengthening in the labor market and the step-down in inflation, mounting tailwinds at a time of full employment and above-trend growth tip the balance of considerations in my view," she said. "With greater confidence in achieving the inflation target, continued gradual increases in the federal funds rate are likely to be appropriate."
Atlanta Fed President Raphael Bostic, who has previously said three rate hikes may not be necessary, said March 7 "everything is on the table," according to Bloomberg News. That could mean that the Fed could hike rates two to four times and is highly dependent on how President Donald Trump's planned tariffs on steel and aluminum increases play out, he told reporters after an event in Florida.
