The central bank is conducting an ongoing review of possible steps it can take when very short-term rates fall to zero. In that process, Brainard proposed putting caps on the prices of short- and medium-term government bond yields using Treasury purchases.
In a speech at the New York Association for Business Economics, Brainard said that limiting how high these yields can rise might avoid limits shown by the Fed’s policy of quantitative easing after the last recession.
“The combination of a commitment to condition liftoff on the sustained achievement of our employment and inflation objectives with yield curve caps targeted at the same horizon has the potential to work well in many circumstances,” Brainard said.
