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

WASHINGTON (AP) — Lael Brainard pledged in written remarks Wednesday to help the Federal Reserve fight a spike in inflation while supporting economic recovery — a delicate balancing act it would face if it were confirmed as Fed No. 2 official.

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

“Our monetary policy is aimed at getting inflation back to 2% while maintaining a recovery that includes everyone,” Brainard said in remarks prepared to be delivered Thursday to the Senate Banking Committee, which is expected to back his nomination in the coming months. weeks before the entire Senate confirms it. “This is our most important task.”

Brainard’s elevation of the fight against inflation as the Fed’s primary objective is remarkable given that she is, for now, the only Democrat on the Fed’s board of directors and that she is seen as more inclined to keep interest rates low to boost jobs than many other Fed officials. Biden is expected to name three more people soon to fill vacancies on the board.

On Wednesday, the government announced that inflation had reached 7% in December from a year earlier, the biggest such increase in four decades. Brainard will be questioned by senators on how the Fed will rein in rising prices, as Powell did during his own Senate confirmation hearing on Tuesday. The Fed is tasked by Congress with maintaining price stability and promoting “maximum employment”.

In his testimony, Powell promised that the Fed would accelerate its planned interest rate hikes, if necessary, to rein in high inflation. The Fed has kept its short-term benchmark rate close to zero since March 2020, when the pandemic plunged the economy into a deep recession. Fed officials have predicted they will hike rates three times this year, while many economists are eyeing four hikes. The rate increases, which in turn increase borrowing costs for many consumer and business loans, are aimed at cooling the economy, slowing hiring and reducing inflation.

Powell’s – 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 pick up further and force it to take more drastic measures later to bring it under control, which could trigger a recession. Yet if the Fed raised rates too quickly, it could trigger this recession sooner and perhaps unnecessarily.

In Tuesday’s testimony, Powell sought to link the Fed’s two mandates of low inflation and maximum employment. He said high inflation, if it took hold, could force the Fed to tighten credit law so aggressively that employers would cut jobs.

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

In the jockey that took place between Democrats before Biden chose Powell for a second term as Fed chairman, Brainard was the preferred alternative to Powell among many progressives. One reason is that she supported tougher financial regulations than Powell. Over the past four years, she has cast 20 dissenting votes against changes to the financial rules. In March 2020, for example, Brainard opposed a regulatory change it said would reduce the amount of reserves big banks were required to hold to guard against losses.

She also spoke more forcefully than Powell about ways the Fed can deal with global warming.

Many environmental groups say loans to oil and gas companies, as well as commercial real estate developers, could default and lead to major losses for banks, if environmental damage worsens.

“Climate change,” Brainard said, “is expected to have profound effects on the economy and the financial system, and it is already causing damage.”

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