Michael S. Derby
NEW YORK (Reuters) – Federal Reserve Vice Chairman Lael Brainard said on Friday the central bank will need to maintain Higher interest rates as part of the response. It works hard to reduce high inflation levels and must prevent premature reductions in interest rates.
“The focus of monetary policy is to restore price stability in a high inflation environment,” Brainard said in a speech at a conference in New York assessing how financial stability is being affected. Fight inflation on a global scale by working hard.
Brainard said the “full impact of tightening financial conditions” caused by the rate hikes will take time to play out in the economy and reduce price pressures. When this happens, “monetary policy needs to be restrictive for a period of time to ensure inflation is returning to target. For these reasons, we are committed to avoiding premature exits.”
The Fed’s No. 2 noted that it was too early to declare victory over price pressures. “Inflation is high in the U.S. and abroad, and the risk of additional inflationary shocks cannot be ruled out,” she said.
Brainard speaks after the Fed’s policy meeting last week. At that meeting, policymakers raised the overnight target rate by three-quarters of a percentage point to 3.% to 3.25 between. % as part of their aggressive move to reduce the highest U.S. inflation level in 40 years. Officials also expect more rate hikes next year.
Brainard noted that the Fed’s target for rate hikes is unclear.
“Uncertainty is high right now, and there are a range of estimates around the appropriate destination for the cycle’s target range,” Brainard said. The Fed will have to grope its way forward to see how its rate hikes play out across the economy, and will “play cautiously in a data-dependent manner” in future policy actions.
Brainard said in her prepared remarks that the Fed is closely watching how its policy actions affect the global economy and financial system. Global financial markets have been facing high volatility, with the dollar surging against major currencies, raising concerns that the Fed’s domestic mandate could cause major problems elsewhere.
“We are concerned about financial vulnerabilities that could be exacerbated by the emergence of additional adverse shocks,” Brainard said. She listed areas where parts of the world could run into trouble, but didn’t say any particular problems seemed imminent or of a scale that would alter the Fed’s current monetary policy path.
