Fed Vice Chair Brainard Talks on Bringing Inflation Down

Federal Reserve Vice Chair Lael Brainard gave a speech in New York titled “Bringing Inflation Down”. The markets got a small boost Wednesday when she said, “At some point in the tightening cycle risks will become more two-sided. She added you need ‘several months of low monthly inflation readings’ to be confident inflation is moving down to 2%. Nothing new but algorithms picked up a positive tone in a Hawkish platform.

Fed Brainard Opinion

Highlights from Brainard Speech

At the Clearing House and Bank Policy Institute 2022 Annual Conference, New York, New York

  • At some point in tightening cycle risks will become more two-sided
  • We are in this for as long as it takes to get inflation down
  • Monetary policy will need to be restrictive for some time
  • Fed’s policy rate will need to rise further
  • Need ‘several months of low monthly inflation readings’ to be confident inflation is moving down to 2%
  • Our resolve is firm, goals clear and tools ‘up to the task’
  • Jobs market continues to exhibit considerable strength, which is hard to reconcile with more downbeat tone of activity
  • A variety of indicators are showing signs of improvement on delivery times and supplies of some goods
  • Notes that food inflation up 8.5% year-to-date and continuing to rise
  • How long it takes to move inflation back down to 2 percent will depend on a combination of continued easing in supply constraints, slower demand growth, and lower markups, against the backdrop of anchored expectations
  • A reduction in currently elevated margins could make an important contribution to reduced inflation pressures in consumer goods

With a series of inflationary supply shocks, it is especially important to guard against the risk that households and businesses could start to expect inflation to remain above 2 percent in the longer run, which would make it much more challenging to bring inflation back down to our target. The Federal Reserve is taking action to keep inflation expectations anchored and bring inflation back to 2 percent over time.

Vice Chair Lael Brainard
Bringing Inflation Down Fed

Core inflation—inflation excluding volatile food and energy prices—also moderated in July. Core goods PCE inflation decelerated to 0.1 percent month-over-month in July after averaging 0.5 percent in May and June.6 While the moderation in monthly inflation is welcome, it will be necessary to see several months of low monthly inflation readings to be confident that inflation is moving back down to 2 percent.

The deceleration in economic activity thus far this year has coincided with only a slight easing in job openings, on net, since their peak in March. The current high level of job openings relative to job seekers remains close to the largest in postwar history, consistent with a tight labor market (figure 5). Businesses that experienced unprecedented challenges restoring or expanding their workforces following the pandemic may be more inclined to make greater efforts to retain their employees than they normally would when facing a slowdown in economic activity

Source: Federal Reserve

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