Fed Vice Chairman Brainard vows “we’re in this as long as it takes” to stop inflation

Fed Deputy Chairman Brainard: We're in this as long as it takes to get inflation down

Federal Reserve Deputy Chair Lael Brainard vowed Wednesday to press the fight against inflation, which she said hurts low-income Americans the most.

That will mean more rate hikes and keeping rates higher for longer, she said in remarks prepared for a speech in New York. Brainard tempered the comments with an acknowledgment that policymakers will be data-dependent and conscious of overdoing the austerity.

“We’re in this as long as it takes to get inflation down,” the central bank official said, just two weeks before the Fed’s next policy meeting. “So far, we have quickly raised the policy rate to the peak of the previous cycle, and the policy rate needs to be increased further.”

Stocks rose further after the comments as investors look for signs that the Fed is committed to bringing down inflation without going too far.

“At some point in the tightening cycle, the risks will become more two-sided,” Brainard added. “The speed of the tightening cycle and its global nature, as well as the uncertainty surrounding the pace at which the effects of tighter economic conditions work their way through aggregate demand, create risks associated with overtightening.”

The markets are betting that the rate-setting Federal Open Market Committee will adopt its third consecutive increase of 0.75 percentage points in benchmark interest rates when it meets again on 20-21. September.

Lael Brainard, Deputy Chairman of the US Federal Reserve, speaks during an Urban Institute panel discussion in Washington, DC, US, Friday 3 June 2022.

Things Shen | Bloomberg | Getty Images

Brainard’s remarks echo recent comments by several officials who have said that rates are likely to remain high “for some time” even after the Fed steps down. The commitment has come from the highest levels of central bank policymakers, including Chairman Jerome Powell and New York Fed President John Williams.

The current federal funds rate is targeted in a range between 2.25% – 2.5% after four consecutive FOMC hikes this year.

Although inflation has shown signs of plateauing recently, year-on-year increases are near their highest levels in more than 40 years. Supply shocks, record-setting fiscal and monetary stimulus and the war in Ukraine have contributed to the increase.

Without committing to a specific course of action, Brainard said the Fed needs to remain vigilant.

“With a number of inflationary shocks in the supply, it is particularly important to guard against the risk that households and businesses may begin to expect inflation to remain above 2 percent in the longer term, which will make it much more challenging to bring inflation down to our goal, she said.

These inflationary pressures are “especially hard on low-income families” who spend most of their household budgets on food, energy and shelter costs, Brainard added.

She noted that there is some anecdotal evidence that prices are falling in retail, as shopkeepers address a pullback in spending due to inflation.

In addition, she said there “may also be room for reduction” in profit margins for the auto industry, which she said are “unusually large” as measured by the gap between wholesale and retail prices.

Conversely, she said that the labor market is still unusually strong, with increasing labor force participation in August as a positive sign.

Brainard said policymakers will be watching the data closely as the economy slows, hopefully curbing inflation along the way.

“Monetary policy needs to be restrictive for some time to give confidence that inflation is moving down towards the target. The economic environment is very uncertain and the path of policy will be data dependent,” she said.

Fed Chairman Jerome Powell will speak on Thursday as the central bank approaches its quiet period before the September meeting.

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