Federal Reserve Governor Lael Brainard said that the central bank can raise interest rates more aggressively to dampen the high rate of inflation felt by Americans.
Brainard, who is awaiting a confirmation vote to serve in the central bank’s number two role, added that policymakers are attuned to the disparate impacts of inflation on particularly lower-income households.
“Currently, inflation is much too high and is subject to upside risks,” Brainard said at a conference Tuesday. “The Committee is prepared to take stronger action if indicators of inflation and inflation expectations indicate that such action is warranted.”
Inflation data released last week showed prices in the United States rising by 6.4% on a year-over-year basis in February, the fastest pace observed since 1982.
Brainard warned that aggregate figures can hide different lived experiences among various communities, suggesting that inflation may be worse among the households least able to afford it.
Citing data from the Bureau of Labor Statistics, Brainard noted that lower-income households spend 77% of their income on necessities, compared to 31% among higher-income households.
“High inflation places a burden on working families who are concerned about how far their paychecks will stretch as well as seniors living on fixed incomes,” Brainard said.
The Fed can address higher inflation by ratcheting up borrowing costs. In March, the Fed took the first steps in doing so by raising short-term interest rates 0.25% and telegraphing its intention to implement more interest rate bumps this year.
Brainard said “additional tightening” will be needed, adding that the Fed will also likely move in about a month to start shrinking its asset holdings (which could have the effect of further raising long-term interest rates).
Brainard added that inflation may not immediately abate, pointing to the war in Ukraine and COVID-related shutdowns in China likely to further exacerbate prices.
In November, President Joe Biden selected Brainard to take on the number two spot at the Fed. The Senate Banking Committee on March 16 advanced Brainard’s nomination to serve as the Fed’s vice chair. She is awaiting a full vote from the Senate, where she is expected to win confirmation.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.
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