Lael Brainard, Federal Reserve Vice Chair, vowed to press the fight against inflation that she stated is hurting lower-income citizens the most.
In remarks prepared for a speech in New York, she claimed that this will mean more interest rate increases and keeping rates higher for longer. Dovetailed off of this comment, she acknowledged that policymakers will be dependent on data and conscious of overdoing “tightening.”
“We are in this for as long as it takes to get inflation down,” the central bank official said, just two weeks before the Fed’s next policy meeting.
After Brainard’s remarks, stocks rallied as investors look for signs that the Fed is actually committed to bringing down inflation in a way that isn’t too harsh on American citizens.
“At some point in the tightening cycle, the risks will become more two-sided,” Brainard added.
“The rapidity of the tightening cycle and its global nature, as well as the uncertainty around the pace at which the effects of tighter financial conditions are working their way through aggregate demand, create risks associated with overtightening.”
Brainard’s remarks are synonymous with recent comments from multiple officials who have said rates will remain elevated “for some time” even after the Fed stops hiking prices.
The federal funds rate is currently in a range between 2.25%-2.5% following four consecutive FOMC increases this year.
Even though inflation has shown signs of plateauing lately, year-over-year surges are near the highest levels in over 40 years. Record-setting fiscal and monetary stimulus, supply stocks, and the war in Ukraine have contributed to the increase.
“Wages are not keeping up with inflation, applying pressure to the middle class and although jobs numbers are looking good, the participation rate continues to hover around the 60% mark.”
Brainard didn’t recommend a specific course of action but did state that the Fed needs to remain vigilant.
“Inflationary pressures are ‘especially hard on low-income families’ who spend most of their household budgets on food, energy, and shelter costs, Brainard claimed.
Brainard additionally stated there “also could be scope for reduction” in profit margins for the auto industry, which she said are “unusually large” as gauged by the gap between wholesale and retail prices.
During the conversation, she said the labor market remains unusually strong, with rising labor force participation in August a hopeful sign.
Brainard concluded that policymakers will be watching the data closely as the economy slows, optimistically tempering inflation along the way.