Federal Reserve Governor Lael Brainard said the U.S. central bank will move “expeditiously” to raise interest rates and return surging inflation to its 2% target.
“We are doing that by tightening monetary policy methodically, and it is through a series of interest rate increases as well as beginning that balance sheet runoff,” Brainard said Tuesday in a live-streamed interview at a Wall Street Journal jobs summit.
She said a decision on the balance sheet “could be as soon as May, which would lead to reductions in that balance sheet starting in June.”
Fed officials increased interest rates by a quarter point in March and signaled they expect to keep hiking all year, while starting to shrink their bloated balance sheet next month. Since then, officials have said this tightening cycle will be faster than in previous economic recoveries — including by raising rates in larger 50 basis-point steps — to curb surging inflation.
“In terms of exactly what the right pace of that set of increases in the policy rate from meeting to meeting, I don’t really want to focus on that,” she said. “But I would just say the combined effect will bring the policy stance to a more neutral posture expeditiously later this year,” she added, referring to the level of rates that neither speed up nor slow down the economy.
U.S. consumer prices rose 8.5% in March from a year earlier, marking the biggest increase since 1981. The war in Ukraine has raised food and energy costs, pushing headline inflation further away from the Fed’s 2% target. U.S. central bankers, by their own admission, were slow to react and are now viewed as moving with determination to catch up.
Minutes of their March 15-16 meeting showed that “many” officials would have preferred a half-point move but wanted to wait to see how Russia’s invasion of Ukraine impacted the economic outlook. The minutes showed that many said one or more half-point rate increases “could be appropriate” if inflation pressures remained elevated.
Financial markets are pricing accordingly with futures traders betting on a high probability of a 50 basis-point hike in the Fed’s main policy rate at its May 3-4 meeting.
Brainard is awaiting Senate confirmation of her nomination to be Fed vice chair by President Joe Biden.
