Fed Vice Chairman: A soft landing is possible


Federal Reserve Chairman Jerome Powell, right, takes a break with Federal Reserve Vice Chairman Lael Brainard, center, and Federal Reserve Bank of New York President and CEO John Williams, left, at the recent annual central bank symposium at Grand Teton National Park in Moran, Wyo. (AP Photo/Amber Baesler)

WASHINGTON (AP) — The Federal Reserve will need to continue raising its short-term interest rate to a level that restricts economic growth and keep it there for an extended period, according to a senior Fed official.

In remarks at a recent banking industry conference, Fed Vice Chairman Lael Brainard echoed similarly harsh comments on inflation made by Chairman Jerome Powell late last month in Jackson. Hole. In recent weeks, other Fed officials have also emphasized their view that the Fed needs to raise borrowing costs to bring down inflation, which is currently near its highest level in four decades.

“We’re here for as long as it takes to bring inflation down,” Brainard said in prepared remarks. “Our determination is firm, our objectives are clear and our tools are up to the task.”

The Fed’s benchmark interest rate “will have to rise further” and remain at a level high enough to slow the economy “for a period of time to provide assurance that inflation is falling” until the target of 2% from the Fed, Brainard said. In July, prices were 8.5% higher than a year earlier.

The stream of harsh inflation rhetoric from Fed policymakers has led many economists to price in a third big three-quarter point rate hike at the Fed’s next meeting next week. If so, it would prolong a rapid series of rate hikes, the fastest since the early 1980s, which began in March.

At its last meeting in July, Fed policymakers decided to raise their short-term rate by three-quarters of a point to a range of 2.25% to 2.5%.

Loretta Mester, president of the Federal Reserve Bank of Cleveland, also reiterated her determination to raise interest rates to control inflation. Higher borrowing costs won’t necessarily cause a recession, she said, but they do increase the risks of a recession.

Even if the United States manages to avoid an economic slowdown, Mester said, higher rates will slow growth, disrupt stock and bond markets and increase unemployment.

“It will be painful in the short term, but so is high inflation,” she said in an online chat with MNI newsfeed.

But Brainard, by contrast, sketched out a hopeful scenario for Fed policies, suggesting they could achieve an elusive goal known as a “soft landing,” in which growth slows enough to make lower inflation, but not to the point of tipping the economy. in recession.

Brainard did not warn, as Powell and Mester did, that Fed interest rate hikes would likely cause “pain” and push up the unemployment rate.

Instead, she pointed out that there were signs supply chain grunts were easing, which could boost factory output and lower prices. And automakers and retailers enjoyed deep profit margins when goods were scarce and Americans were spending heavily. But as consumers begin to pull back amid high inflation, retailers and automakers may need to cut prices to boost sales, she said.

“I’m confident we’ll see a return to 2% inflation,” Brainard said.


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