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3 min read . Updated: 12 Apr 2022, 06:34 PM IST Central bank officials have signaled expectations for a more rapid pace of policy tightening this spring, sending up bond yields
Federal Reserve governor Lael Brainard is set to take questions Tuesday on the U.S. economic outlook and its implications for the labor market, inflation and central-bank policies.
Ms. Brainard, who is awaiting Senate confirmation to serve as the Fed’s vice chairwoman, is scheduled to speak in a 35-minute interview beginning at 12:10 p.m. Eastern time as part of The Wall Street Journal Jobs Summit. The appearance comes as the central bank is raising interest rates as part of their most aggressive effort in decades to curb price pressures.
Fed officials signaled they could raise rates by a half percentage point at their meeting early next month and begin trimming their $9 trillion asset portfolio, according to minutes of the Fed’s March 15-16 meeting released last week. The meeting minutes followed remarks by Ms. Brainard last week that sent bond yields rising amid anticipation of tighter Fed policy this year.
Officials voted at the March meeting to lift rates by a quarter-point, their first rate increase since 2018.
Ms. Brainard’s remarks will come hours after the Labor Department is set to report its March inflation data.
Fed officials described higher inflation a year ago as transitory. They backed away from that characterization last fall, as the labor market healed rapidly and price pressures broadened to a wide range of goods and, more important, labor-intensive services.
Still, as recently as January, the Fed had expected inflation to diminish this spring as supply-chain bottlenecks improved. The war in Ukraine and renewed lockdowns in China to deal with more contagious variants of the coronavirus have ended any expectation of near-term relief from improving supply chains and prompted many Fed officials to call for a faster pace of rate rises this spring and summer.
The central bank is still counting on inflation falling later this year as supply-chain problems ease and as more workers return to labor markets. But unlike last year, Fed leaders have said the central bank could no longer set near-term policy by forecasting that such relief would materialize.
Last week, Ms. Brainard said Russia’s invasion of Ukraine was a “seismic geopolitical event" that had delivered a global commodity supply shock likely to further boost inflation and exacerbate disrupted global supply chains.
At their meeting last month, Fed officials penciled in another 1.5 percentage points in rate increases this year, which would leave their benchmark rate slightly below 2% by December. Ms. Brainard expected that the asset-portfolio runoff would further remove stimulus beyond those projections so that the Fed would reach a “more neutral position later this year," she said. “The full extent of additional tightening" after that will depend “on how the outlook for inflation and employment evolves."
Fed officials pay close attention to surveys and other measures of consumers’ and businesses’ expectations of future inflation, because they believe such psychology plays a meaningful role in determining actual inflation. Ms. Brainard said that every indicator of longer-term inflation expectations remained in a historical range that was consistent with the Fed’s 2% inflation goal.
The Fed is “prepared to take stronger action if indicators of inflation and inflation expectations indicate that such action is warranted," she said.