Fed will tighten monetary policy 'for as long as it takes' to curb inflation — Brainard

Federal Reserve Vice Chair Lael Brainard said the central bank is entirely focused on taming historically high inflation and committed to raising interest rates until price stability has been achieved.

"We're in this for as long as it takes to get inflation down," Brainard said in her prepared remarks before a conference sponsored by the Bank Policy Institute and The Clearing House in New York on Wednesday. "While the precise course of action will depend on the evolution of the outlook, I am confident we will achieve a return to 2% inflation. Our resolve is firm, our goals are clear and our tools are up to the task."

Ting Shen/Bloomberg

Brainard noted that the causes of some of the most rapid price increases in decades — including strong consumer spending, high markups and supply chain disruptions — appear to be abating. Consumer demand for interest rate-sensitive products like cars and housing is cooling because of the central bank's rate increases, she said, and there is anecdotal evidence that high consumer inventories could lead to markdowns that will ease inflationary pressure. 

Increasing wages and persistently low unemployment are leading the Federal Open Market Committee — the rate-setting body within the Fed — to be confident that increasingly tight monetary policy is necessary to further cool demand and bring inflation back into the desired 2% range. While that stance will likely moderate over time, she said, in the near term the central bank believes that a tighter monetary stance is critical to instill in the public an expectation that prices can and will remain stable.

"How long it takes to move inflation back down to 2% will depend on a combination of continued easing in supply constraints, slower demand growth, and lower markups, against the backdrop of anchored expectations," Brainard said. "At some point in the tightening cycle, the risks will become more two-sided. The rapidity of the tightening cycle and its global nature, as well as the uncertainty around the pace at which the effects of tighter financial conditions are working their way through aggregate demand, create risks associated with overtightening. And if history is any guide, it is important to avoid the risk of pulling back too soon." 

Brainard's comments echo those of Fed Chair Jerome Powell, who in August said that Americans would likely feel "some pain" during the current tightening cycle, but that such pain was necessary to forestall a prolonged inflationary period like that experienced in the 1970s and 1980s.