Fed’s Brainard warns that restrictive interest rates may be needed ‘for some time’

Federal Reserve Vice Chairman Lael Brainard on Friday stressed the need to fight scorching inflation with higher interest rates and pledged that the central bank will not pull back prematurely on tighter monetary policy.

In a speech at the Federal Reserve Bank of New York, Brainard emphasized that officials will work “both intentionally and in a data-dependent manner” in forging monetary policy amid growing concerns about a global recession.

“Monetary policy will have to be restrictive for some time to be confident that inflation is back on target,” she said. “For these reasons, we are committed to avoiding a premature withdrawal.”

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

THE FED’S WAR ON INFLATION COULD COST 1MILLION JOBS

Fed Vice Chairman Lael Brainard

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

Officials last week approved a third consecutive 75 basis point rate hike, raising federal funds rates to a range of 3.0% to 3.25% β€” near restrictive levels β€” and signaled more super-large hikes to come. A basis point is one hundredth of a percent.

There is growing expectation on Wall Street that the Federal Reserve will cause an economic downturn as it raises interest rates at the fastest pace in three decades to catch up with runaway inflation.

Economic growth 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 – by 1.6% in the winter and 0.6 in the spring. % shrank.

Fed Chair Jerome Powell has nearly admitted that the central bank will plunge the economy into recession with its rapid rate hikes, warning that higher interest rates will cause economic “pain.”

β€œThe chances of a soft landing are likely to decrease to the extent that policies need to be more restrictive or restrictive for longer,” Powell told reporters in Washington. “Nevertheless, we are committed to bringing inflation back to 2%. We believe that failing to restore price stability would mean much more pain.”

Federal Reserve Chair Jerome Powell

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

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

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

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New government data released Friday showed that the Fed’s preferred inflation gauge, known as the Personal Consumption Expenditures (PCE) index, accelerated more than expected in August, suggesting underlying inflationary pressures remain strong.

The PCE index showed core prices, excluding food and energy, rose 0.6% from the previous month and rose 4.9% year-on-year, according to the Commerce Department.

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