Fed's Brainard backs cautious, gradual approach to interest rate hikes

WASHINGTON (MarketWatch) - The Federal Reserve should move gradually and cautiously to raise interest rates given the state of the economy, Federal Reserve Governor Lael Brainard said on Tuesday. In a speech at Stanford University, Brainard, one of the doves on the U.S. central bank, said three factors -- the poor outlook for the global economy, investor caution in the wake of the crisis and low productivity growth -- translate into a low-interest-rate economic environment. Brainard expressed some skepticism with the majority view on the Fed that the natural level of interest rates rise gradually over time as the labor market improves. She said if the Fed hikes rates prematurely, it will be difficult for the central bank to ease policy to counter the mistake with the policy rate so close to zero. On the other hand, if the Fed makes a mistake by remaining too easy, rates can readily be tightened later to restrain any buildup in inflation.

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