Inflation Fight Should Not Be Prematurely Withdrawn, Says Fed Vice Chair Brainard

The Federal Reserve’s Vice Chair, Lael Brainard, stressed on Friday the importance of addressing inflation and not abandoning the task until it has been accomplished. “Monetary policy will need to be restrictive for some time to have confidence that inflation is moving back to target,” the central bank official said in remarks prepared for a speech in New York. “For these reasons, we are committed to avoiding pulling back prematurely.” After the Federal Reserve raised its benchmark funds rate to a range of 3%-3.25% a little more than a week ago, the Fed enacted its fifth interest rate increase. September’s increase marked the third consecutive 0.75 percentage point increase for a rate that feeds through to most adjustable-rate consumer debt. While Fed officials and many economists expect that inflation may have peaked, Brainard warned 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, as measured by the Federal Reserve’s preferred personal consumption expenditures price index. Core PCE increased 4.9% yearly and 0.6% for the month, both higher than estimates and well above the Fed’s 2% inflation target. Treasury yields have soared since the Federal Reserve increased rates, and the dollar has increased in value against its global peers. Brainard noted the ramifications of a higher U.S. currency, saying it exerts inflationary pressures globally. “On balance, dollar appreciation tends to reduce import prices in the United States,” she said. “But in some other jurisdictions, the corresponding currency depreciation may contribute to inflationary pressures and require additional tightening to offset.” Several central banks around the world have raised interest rates to combat their inflation problems. The Fed is far from alone in tightening policy. Brainard noted, however, that the Federal Reserve has been more aggressive than many of its peers, which may have spillov