Fed's Brainard warns restrictive interest rates may be needed 'for a while'

Fed’s Brainard warns restrictive interest rates may be needed ‘for a while’

Federal Reserve Vice Chairman Lael Brainard on Friday underscored the need to fight scorching inflation with higher interest rates and promised the central bank would not give up on tighter monetary policy prematurely.

In a speech at the Federal Reserve Bank of New York, Brainard stressed that officials will proceed both “deliberately and data-dependently” when crafting monetary policy amid growing concerns about a global recession.

“Monetary policy will need to be tight for a while to have confidence that inflation is returning to target,” she said. “For these reasons, we undertake to avoid withdrawing prematurely.”

The US central bank has embarked on one of the fastest routes in history to raise borrowing costs and slow down the economy.

FED’S WAR ON INFLATION COULD COST 1M JOBS

Fed Vice Chairman Lael Brainard

U.S. Federal Reserve Governor Lael Brainard at the National Association of Business Economics (NABE) annual meeting in Arlington, Va., Monday, Sept. 27, 2021. (Al Drago/Bloomberg via Getty Images/Getty Images)

Last week, officials approved a third consecutive rate hike of 75 basis points, taking the federal funds rate to a range of 3.0% to 3.25% – levels close to the restrictions – and indicated that further large increases are to come. A basis point is one hundredth of one percent.

There is a growing expectation on Wall Street that the Federal Reserve trigger an economic downturn by raising interest rates at the fastest rate in three decades to catch up with runaway inflation.

Economic growth has already contracted in the first two quarters of the year, with gross domestic product – the broadest measure of goods and services produced in a country – contracting 1.6% in winter and 0 .6% in spring.

Fed Chairman Jerome Powell all but conceded that the central bank would tip the economy into a recession with its rapid rate hikes, warning that higher rates would cause economic “pains”.

“The chances of a soft landing are likely to diminish to the extent that the policy has to be more restrictive or restrictive for longer,” Powell told reporters in Washington. “Nevertheless, we are committed to bringing inflation down to 2%. We believe that a failure to restore price stability would cause much greater pain.”

Federal Reserve Chairman Jerome Powell

Federal Reserve Chairman Jerome Powell arrives to speak at a press conference following a meeting of the Federal Open Market Committee (FOMC) in Washington, DC, Wednesday, September 21, 2022. (Photographer: Sarah Silbiger/Bloomberg via Getty Images/Getty Images)

But Brainard cautioned against complacency in the Fed’s fight against inflation.

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

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New government data released on Friday showed that the Fed’s favorite inflation gauge, known as the personal consumption expenditure (PCE) index, accelerated more than expected in August, suggesting that inflationary pressures underlyings remain strong.

The PCE index showed underlying prices, excluding food and energy, rose 0.6% from the previous month and 4.9% on an annual basis, according to the Commerce Department.

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