Fed's Barinard: Monetary policy will have to shift from stabilization to accommodation

A broad second wave of coronavirus cases in the US could reignite financial market volatility, Federal Reserve Governor Lael Brainard said on Tuesday. "It's unclear whether the rapid pace of labour market recovery will be sustained," she added.

Key takeaways

"Monetary policy will have to shift from stabilization to accommodation."

"Forward guidance is a vital way for fed to provide necessary accommodation."

"Monetary policy must support inflation expectations that are consistent with 2% inflation over time."

"Balance sheet policies can help extend accommodation by more directly influencing key interest rates."

"May come a time when yield curve control helps too but requires additional analysis, discussion."

"There is a thick fog of uncertainty and downside risks predominate for the US economy."

"Timing, magnitude and distribution of additional fiscal support will remain vital to strength of the US recovery."

"Nonbank financial firms could again come under pressure, some banks might pull back lending."

Market reaction

The US Dollar Index largely ignored these comments and was last seen losing 0.3% on the day at 96.23.