Federal Reserve Governor Lael Brainard on Friday warned that raising U.S. interest rates could hit global growth enough to knock the U.S. economy off its current growth path.
This could leave the U.S. economy particularly vulnerable because the central bank’s benchmark interest rate is already close to zero.
“The ability to offset spillovers from adverse developments in foreign economies with conventional policy is constrained, suggesting greater caution than normal,” Brainard said in prepared remarks to be delivered before a conference on monetary policy.
The speech marked the latest occasion Brainard has urged her rate-setting colleagues to be extra careful about raising interest rates given global risks.
A strong report on hiring in the U.S. economy during October, released earlier on Friday, has hardened expectations the Fed will raise interest rates in December. Brainard did not comment on the timing for rate hikes.
She said expectations that America will tighten policy faster than its major trading partners is already restraining U.S. economic growth through a stronger U.S. dollar.
She said the build-up of bubbles in China’s economy has “raised concerns,” pointing out that many countries closely tied to China’s economy are “important destinations for U.S. exports.”
“A further weakening of foreign growth could pose downside risks to the U.S. outlook,” Brainard said.