November 30, 2022

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Fed Vice Chairman Brainard warns of early rollback in the fight against inflation

Fed Vice Chairman Brainard warns of early rollback in the fight against inflation

Lyle Brainard, a member of the US Federal Reserve Board, speaks after US President Joe Biden nominated her to serve as Vice Chair of the Federal Reserve, in the South Courtroom of the Eisenhower Executive Building at the White House in Washington, US, November 22, 2021.

Kevin Lamarck | Reuters

Federal Reserve Vice Chair Lyle Brainard on Friday stressed the need to tackle inflation and the importance of not backing out of the job until it’s done.

“Monetary policy will need to be constrained for some time until you are confident that inflation will return to the target,” the central bank official said in remarks prepared for a speech in New York. For these reasons, we are committed to avoiding a premature decline.”

The comments came just over a week after the Federal Reserve issued its fifth rate hike of the year, pushing the benchmark interest rate into the 3%-3.25% range. The increase in September was the third consecutive 0.75 percentage point increase for the rate fueled by adjustable rate consumer debt.

While Federal Reserve officials and many economists predict that inflation may have peaked, Brainard cautioned against complacency.

“Inflation is very high in the United States and abroad, and the risk of additional inflationary shocks cannot be ruled out,” she said.

Earlier Friday morning, the Commerce Department released data showing that inflation continued to rise in August, according to the Fed’s preferred personal consumption expenditures price index. Core personal consumption expenditures rose 4.9% year over year and 0.6% for the month, both above estimates and well above the Fed’s 2% inflation target.

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Since the Federal Reserve raised interest rates, Treasury yields have risen and the dollar has rapidly increased in value against its global peers. Brainard pointed to the repercussions of a stronger US currency, saying it is putting inflationary pressures globally.

“Overall, a stronger dollar tends to lower import prices in the United States,” she said. “But in some other jurisdictions, corresponding currency depreciation may contribute to inflationary pressures and require additional offsetting tightening.”

The Fed is not alone in tightening policy, as central banks around the world are raising interest rates to combat their own inflation problems. However, the Fed has been more aggressive than most of its peers, something Brainard noted may have spillover effects.