President Joe Biden’s candidate for the Federal Reserve’s No. 2 spot, Lyle Brainard, said Thursday that combating high inflation is the Fed’s top priority and promised the Fed can bring it down without sacrificing job growth.
WASHINGTON – President Joe Biden’s candidate for the Federal Reserve’s No. 2 spot, Lyle Brainard, said Thursday that combating high inflation is a top priority for the central bank and added that he believes the Fed is sacrificing economic growth. without reducing it.
Testifying at his confirmation hearing before the Senate Banking Committee, Brainard said inflation “is very high, and working people around the country are worried about how far their paychecks will go.”
“We are taking action … I believe inflation will subside, while continuing to allow the labor market to return to full strength over time,” she said. Fighting inflation 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 only Democrat on the Fed’s board and has long been raising interest rates to boost employment rather than rolling back higher rates. Seen as wanting to keep low. To reduce inflationary pressures. His stance suddenly reflects the pivot the Fed has recently made toward making fighting inflation its top priority under Chair Jerome Powell.
Biden named Brainard to the Fed’s vice president in late November, the same day he announced that he would nominate Powell for another four-year term as Fed chairman. 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. The rise in consumer prices has put Fed policy in the spotlight. The central bank 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, although 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.