Fed policymakers united on combating inflation

The Fed’s Vice Chair Lael Brainard, on Friday, stressed that any rate cut would be premature. Brainard added her full support of US central bank’s higher for longer plan for interest rates to combat inflation that new data shows is still at more than three times as much as the 2% target.

In her first public remarks since the Fed’s decision last week to raise rate by three-quarters of a percentage point for a third straight time, Brainard said: “Monetary policy is focused on restoring price stability in a high-inflation environment”.

Brainard said it was far too soon to declare victory over price pressures. “Inflation is very high in the United States and abroad, and the risk of additional inflationary shocks cannot be ruled out”, she noted.

Brainard’s remarks indicate she is in stride with her Fed colleagues who have said they must see clear evidence of slowing inflation before they let up on the policy tightening.

San Francisco Fed President Mary Daly said in an interview on Newsy, an online news program, that lowering inflation is the central bank’s main mission, adding that “before we get ahead of ourselves and worry about recession, I think we should just get the economy slowing in the way that we need to” bring down inflation.

Speaking separately, Richmond Fed President Thomas Barkin said he was more worried about inflation becoming sticky than in the prospect that the central bank had pushed too hard with its rate hikes.

The Fed officials’ remarks coincided with the release of the latest reading of the Fed’s preferred measure of inflation, which showed price pressures remain a problem.

The Personal Consumption Expenditures price index rose 6.2% in August from the same month a year ago, a small moderation from the 6.4% year-over-year increase seen in July. But when stripped of food and energy costs, the index increased 4.9% from August 2021, versus the 4.7% year-over-year rise seen in the month before.

A separate inflation measure released by the Dallas Fed on Friday that excludes items with the largest price swings also rose in August, a sign that price pressures remained broad throughout the economy.

The inflation data matched other recent reports that showed a broadening of underlying inflation in the US economy, which should keep the Fed on track for aggressive rate rises in the coming months.

There was some positive news in the outlook for price pressures. The University of Michigan’s consumer sentiment survey for September found that the public’s projected five-year-ahead inflation outlook cooled.