MNI: Brainard Says Fed Needs To Be Restrictive For Some Time

Federal Reserve Vice Chair Lael Brainard said Wednesday policymakers must raise interest rates and keep them there "for as long as it takes" to bring down inflation running near 40-year highs and to keep price expectations anchored.

"So far, we have expeditiously raised the policy rate to the peak of the previous cycle, and the policy rate will need to rise further," she said in remarks prepared for a banking conference. "We are in this for as long as it takes to get inflation down."

Monetary policy "will need to be restrictive for some time to provide confidence that inflation is moving down to target," she added, repeating language used by Fed Chair Jerome Powell and others. "At some point in the tightening cycle, the risks will become more two-sided," she said.

Like most of her colleagues, Brainard has stayed away from explicitly calling for either a third 75 basis point hike or a reduced 50bp move later this month, citing a "highly uncertain" economic environment and the need to be data dependent.

WELCOME SIGNS

Inflation moderated in July, a "welcome" development, Brainard noted, but "it will be necessary to see several months of low monthly inflation readings to be confident that inflation is moving back down to 2%."

How long it takes to get inflation back to target will depend on continued easing in supply constraints, slower demand growth, and lower markups on the part of firms, Brainard said. There are signs of improvement in both goods supply and shipping times as well as labor supply, she noted.

But if history is any guide, it is important to avoid the risk of pulling back too soon, Brainard said. "We must maintain a risk management posture to defend the inflation expectations anchor."

"With a series of inflationary supply shocks, it is especially important to guard against the risk that households and businesses could start to expect inflation to remain above 2% in the longer run, which would make it much more challenging to bring inflation back down to our target."