By Yasin Ebrahim
Invesitng.com -- Federal Reserve Governor Lael Brainard on Thursday backed higher for longer rates, saying policy will need to be “sufficiently restrictive for some time" to ensure inflation returns to the central bank’s 2% target.
“Even with the recent moderation, inflation remains high, and policy will need to be sufficiently restrictive for some time to make sure inflation returns to 2% on a sustained basis,” Brainard said in remarks prepared for a speech in Chicago.
Brainard said the Fed was “determined to stay the course" on monetary policy tightening at a time when many are betting on the Fed further downshifting to a 25 basis point hike at its meeting next month.
About 67% of traders expect the Fed to lift rates by 0.25% at its February meeting, according to Investing.com's Fed Rate Monitor Tool.
The Fed slowed the pace of rate hikes to 0.5% in December, a move that allowed the central bank to "assess more data as we move the policy rate closer to a sufficiently restrictive level, taking into account the risks around our dual-mandate goals," Brainard added.
Core PCE, the Fed's preferred inflation gauge, is running at a 3.1% annualized pace on a 3-month basis amid slowing price pressures in core goods inflation, though the pace of this deacceleration is expected to flatten out.
"Core goods prices are likely to flatten out once earlier large gains reverse, in the absence of new shocks, and overall core inflation could move up somewhat for a time as a result," Brainard added.
Pointing to services inflation, particularly nonhousing services, in which wage growth plays a key inflationary role, Brainard said there wasn't material evidence to suggest that the tight labor market was leading to a wage spiral. But she continued to support further action to weaken labor demand and keep a lid on wage growth.
"Together, the price trends in core goods and nonhousing services, the tentative indications of some deceleration in wages, the evidence of anchored expectations, and the scope for margin compression may provide some reassurance that we are not currently experiencing a 1970s‑style wage–price spiral," the Fed vice chair said.
"For these reasons, it remains possible that a continued moderation in aggregate demand could facilitate continued easing in the labor market and reduction in inflation without a significant loss of employment."