Brainard calls on the Fed to keep his nerve on inflation

A senior Federal Reserve official warned that the US central bank should hold its nerve while trying to tame spiraling inflation, adding her name to the list of policymakers making a hawkish note about future interest rate hikes.

Lyle Brainard, Vice Chairman of the Federal Reserve, reinforced expectations that the central bank will choose to raise interest rates by 0.75 percentage points for the third time in a row at its meeting later this month. “We’re in this for as long as it takes to bring down inflation,” she said.

Brainard said feed it Had he had the “ability and responsibility” to maintain public confidence in his ability to keep inflation in check in the long run, adding higher rates that constrained the economy would be necessary “for some time”.

strong interference from BrainardIt is generally seen as a dove on monetary policy, with investors increasing their bets that the Fed will implement another 75 basis point increase when officials meet on September 21.

On Wednesday, futures markets indicated an 81 percent chance of opting for an increase of this size.

Another great expectation interest rate Rallies have pushed the dollar higher in recent months, contributing to downward pressure on other major currencies.

The dollar’s measure against six other peers jumped nearly 15 percent in 2022. The pound fell just as much, hovering near its weakest level since 1985. The widening gap between the Federal Reserve’s tightening program and the ultra-loose Bank of Japan has pushed The yen is at its lowest level in 24 years.

Brainard, speaking at a banking industry conference in New York, said the Fed’s recent interest rate increases have begun to calm some sectors of the US economy. She said that at some point the central bank would need to consider the risks of going beyond monetary policy that was too strict.

But she added that before the Fed would consider easing in its efforts to tame high rates, it would need to see “several months of low monthly inflation readings” and be confident that it is close to its 2 per cent target.

Brainard’s focus on inflation expectations underscored the Fed’s fears that persistently high inflation could lead to a vicious cycle, as companies raise prices and workers demand higher wages. That could force the central bank to take more aggressive action and cause more economic pain.

However, she said events in other countries could lower inflation in the US, as Europe faces a weaker economy and “severe energy shortages” while China extends Covid lockdown measures.

“The process of reducing inflation here at home should be strengthened by weak demand and tightening in many other countries,” she said.

Brainard said the US labor market continued to “show great strength” which she said was “difficult to reconcile [a] More pessimistic tone of activity.”

Shortly after Brainard’s remarks, the Fed published its latest Beige Book, an anecdotal assessment of regional economic conditions, which found evidence of a tight labor market across the country.

Brainard is the latest Fed official to strengthen the tough message President Jay Powell delivered it last month in Jackson Hole, Wyoming. Thomas Barkin, the president of the Richmond Federal Reserve, told the Financial Times this week that he has a “bias” about it. Tighten monetary policy quickly “As long as you don’t unintentionally break something.”

Meanwhile, Michael Barr, the Fed’s deputy chair of oversight, said on Wednesday that the risk of letting inflation spiral upward is “much worse” than being too aggressive.

Barr, one of the top US banking regulators, said the Fed would “consider adjustments” to various banking rules, including stress tests, capital shocks and its system for evaluating bank mergers.