Fed’s Brainard: Not Seeing Significant Q2 Bounce Back

Feds BrainardOn Tuesday, June 2, 2015, a voting member of the Federal Open Market Committee (FOMC), Lael Brainard said that current economic data does not suggest that the U.S. will see a significant second-quarter rebound. She also stated that a strong dollar delays U.S. interest rates to nominal levels. Despite the disappointing economic data, she mentioned that a 2015 rate hike is still possible. (Source: Federal Reserve, June 2, 2015.)

“No doubt, bad weather, port disruptions, and statistical issues are responsible for some of the softness in first-quarter indicators of aggregate spending,” Brainard said. (Source: Ibid.)

According to the report, the overall U.S. economy shrank in the first quarter of 2015 and U.S. gross domestic product (GDP) declined at an annual rate of 0.7% in the first three months of 2015. (Source: Bureau of Economic Analysis, last accessed June 2, 2015.)

There is deflationary pressure from abroad; recent data suggest that inflation in the U.S. is starting to firm up. Oil prices have recovered from record lows and monthly changes in personal consumption expenditures (PCE) have increased.


Brainard added that although there were some expectations regarding the boost to real income from lower gas prices, consumer spending so far this year has been weak. Moreover, PCE decreased by $2.6 billion, or less than 0.1%. (Source: Bureau of Economic Analysis, June 2, 2015.)

In her statement, Brainard said that net exports have been declining as the U.S. dollar rises. And no one knows how long the U.S. dollar will remain strong. “This large decline likely reflects more than exchange rate appreciation alone, but some drag on net exports from exchange rate appreciation is likely to persist,” she said.

“My own reading is that earlier, more optimistic growth projections may have placed too much weight on the boost to spending from lower energy prices and too little weight on the negative implications for aggregate demand of the significant increase in the foreign exchange value of the dollar and large decline in the price of crude oil,” the FOMC voting member stated.

Brainard also said that a federal funds hike still could occur this year and that she would like to move rates “step-by-step.”