Brainard vows to help combat inflation as No. 2 Fed official

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Lyle Brainard pledged in written remarks to help the Federal Reserve fight a spike in inflation while backing an economic recovery — a difficult balancing act to face if confirmed as the Fed’s No. 2 official.

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WASHINGTON — Lyle Brainard, in written remarks Wednesday, pledged to help the Federal Reserve fight a spike in inflation by supporting economic recovery — facing a difficult balancing act when he is confirmed as the Fed’s No. 2 official. Will have.

Brainard, a member of the Central Bank’s board of governors, was nominated to the vice presidency by President Joe Biden in late November, the same day Biden nominated Jerome Powell for a second four-year term as chair. As Fed governor since 2014, Brainard has voted on central bank interest rate decisions at its eight policymaking meetings each year as well as on its financial regulatory policies.

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“Our monetary policy remains focused on bringing inflation back to 2%, all inclusive,” Brainard said in remarks ready for delivery to the Senate Banking Committee on Thursday. The full Senate confirms it. “This is our most important task.”

The height of Brainard’s inflation-fighting position as the Fed’s top target is notable, as she is, for now, the lone Democrat on the Fed’s board and more than many other Fed officials to keep interest rates low to boost employment. more willing to. Biden is expected to soon nominate three more people to fill vacancies on the board.

On Wednesday, the government reported that inflation rose to 7% in December from a year earlier, the fastest growth in four decades. Brainard will face questioning from senators about how the Fed will rein in rising prices, as Powell did at his Senate confirmation hearing on Tuesday. The Fed has been tasked by Congress to keep prices stable and promote “maximum employment.”

In his testimony, Powell pledged that the Fed would accelerate its planned interest rate hikes, if necessary, to curb high inflation. The Fed has kept its benchmark short-term rate near zero since March 2020, when the pandemic plunged the economy into a deep recession. Fed officials have predicted they will raise rates three times this year, while many economists envision four hikes. Rate increases, which, in turn, raise borrowing costs for many consumer and business loans, which are intended to cool the economy, slow hiring, and reduce inflation.

Powell – and Brainard -‘s challenge this year is to strike the right balance between fighting inflation and supporting the economy. If the Fed raises rates too slowly, inflation could accelerate further and force it to take more drastic measures later, potentially leading to a recession. Yet if the Fed raises rates too quickly, it could trigger that recession earlier and perhaps unnecessarily.

In his testimony on Tuesday, Powell sought to link the Fed’s two mandates of low inflation and maximum employment. He added that high inflation, if it becomes “intrusive,” could force the Fed to tighten the Credit Act so aggressively that employers cut jobs.

“Achieving maximum employment, by which we really mean that continued progress in hiring and participation, will require price stability,” Powell said.

In the jockeying that took place among Democrats before Biden chose Powell for a second term as Fed chairman, Brainard was Powell’s preferred choice among many progressives. One reason is that it favors tougher financial regulations than Powell. Over the past four years, he has cast 20 dissenting votes against changes to financial rules. In March 2020, for example, Brainard opposed a regulatory change it said would reduce the amount of reserves large banks need to hedge losses.

He has spoken more forcefully than Powell on the ways that the Fed can combat global warming.

Several environmental groups say loans to oil and gas companies, as well as commercial real estate developers, can default and cause major losses in banks, worsening the environmental damage.

“Climate change,” Brainard has said, “is projected to have a profound impact on the economy and the financial system, and it is already hurting.”

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