Fed Vice President Brainard pledges ‘we’ll be in this as long as it takes’ to stop inflation

Federal Reserve Vice-Chairman Lael Brainard vowed Wednesday to fight inflation, which she says is hurting lower-income Americans the most.

That means more rate hikes and higher interest rates for longer, she said in comments prepared for a speech in New York. Brainard muted the comments by acknowledging that policymakers will rely on data and be aware of over-tightening.

“We’ll be in this for as long as it takes to curb inflation,” the central bank official said, just two weeks before the Fed’s next policy meeting. “Until now, we have quickly raised key rates to the peak of the previous cycle, and key rates will need to rise further.”

Shares rose further after the comments, as investors look for signs the Fed is committing to cutting inflation without going too far.

“At some point in the tightening cycle, the risks will become more two-sided,” Brainard added. “The speed of the tightening cycle and its global nature, as well as uncertainty about how fast the effects of tighter financial conditions feed through to aggregate demand, create risks associated with tightening too far.”

Markets are betting that the rate-setting Federal Open Market Committee sets its third consecutive 0.75 percentage point increase in benchmark rates when it reconvenes Sept. 20-21.

Brainard’s comments echo recent comments from multiple officials who said interest rates will likely remain high “for quite some time” even after the Fed stops walking. The stakes come from top central bank policymakers, including Chairman Jerome Powell and New York Fed President John Williams.

The current Federal Funds rate is targeting a range between 2.25% and 2.5% after four consecutive FOMC hikes this year.

While inflation has recently shown signs of stabilization, year-on-year increases are near the highest level in more than 40 years. Supply shocks, record-breaking fiscal and monetary stimulus and the war in Ukraine contributed to the increase.

Without committing to any specific course of action, Brainard said the Fed should remain vigilant.

“With a series of inflationary supply shocks, it is especially important to guard against the risk that households and businesses could expect inflation to remain above 2 percent over the longer term, which would make it much more difficult to bring inflation back to us. target,” she said.

Those inflationary pressures are “particularly heavy on low-income families” who spend most of their household budgets on food, energy and shelter, Brainard added.

She noted that there is some anecdotal evidence that prices in the retail sectors are falling as store owners tackle a slump in spending due to inflation.

In addition, she said there could also be “room for cuts” in auto profit margins, which she says are “unusually large”, as evidenced by the gap between wholesale and retail prices.

Conversely, she said the labor market remains unusually strong, with a rising employment rate in August as a positive sign.

Brainard said policymakers will keep a close eye on the data as the economy slows, hopefully tempering inflation along the way.

“Monetary policy will have to be restrictive for some time to give confidence that inflation is going down. The economic environment is very uncertain and the path of policy will depend on data,” she said.

Fed Chair Jerome Powell speaks on Thursday as the central bank approaches the quiet period ahead of its September meeting.