Fed’s Brainard Is Ready to Raise Rates After Cutting Bond Purchases

Federal Reserve Director Lael Brainard said on Thursday that the U.S. central bank is in a position to initiate what could turn out to be several rate hikes this year once it completes its planned bond-buying program. for March.

“The committee [de definição de política monetária do ​Fed] designed several augmentations [dos juros] throughout the year,” Brainard said in testimony before the Senate Banking Committee.

“Of course we will be in a position to do that I think once our purchases are closed and we will simply have to see what the data requires over the year, and you know we have started to discuss reducing our balance sheet,” she said. .

Brainard also said he expects the current wave of high inflation to persist over the next two quarters. His comments came in response to a question from a senator during his Fed vice-chair nomination confirmation hearing.

The director, however, said she is confident that the central bank will be able to contain the rate of inflation, currently more than twice the Fed’s target, and that, in turn, will allow the job market to recover its full strength. force.

“We are taking actions on the monetary policy front that I believe will reduce inflation while continuing to allow the labor market to return to full strength over time,” Brainard said.

“So let’s achieve that sustainable full employment while bringing inflation down to 2%.”

The central bank, at the end of last year, began to reduce its purchases of Treasuries and mortgage-backed securities and is on track to complete this process in March.

Minutes from the Fed’s last monetary policy meeting of 2021 indicated that policymakers were increasingly anxious to deal with the inflation rate, which is more than twice above the flexible annual target of 2%.

Several Fed officials have since publicly advocated for interest rate hikes to begin at the March 15-16 monetary policy meeting. Brainard appeared to signal that it is ready to act on interest rates immediately following the completion of the bond-buying reduction.

The central bank cut its benchmark interest rate to near zero in March 2020 and launched a large-scale asset purchase program to protect the economy from the blow caused by the onset of the coronavirus pandemic.

On Tuesday, at his confirmation hearing before the same group of senators for a second term as Fed chief, Jerome Powell said the economy no longer needs such broad support.

Director says she has not suggested climate-focused stress tests

Brainard also said on Thursday that he had not suggested that the US central bank use stress tests to assess financial institutions’ exposure to climate change, adding that officials should not tell banks which sectors they can and cannot lend to.

The director said it was important for the Fed to understand the potential risks to the financial system and that she was more concerned about the ability of large financial institutions to manage their “material risks”.

Jerome Powell said on Tuesday that he sees climate stress scenario testing as a “key tool going forward” to ensure that major US banks are aware of the risks they are taking in relation to global climate change, which could impact your financial strength and stability.