The Fed's Brainard is speaking in an interview with the WSJ and says:
- Russia's invasion of Ukraine driving topline inflation, especially energy
- Most focused on core inflation for assessing the path of monetary policy
- Welcome to see moderation in core goods inflation
- I will be looking to see if we continue to see moderation in inflation in months ahead
- Labor market and economy overall has been very strong demand
- Getting inflation down our most important task
- Encouraging in last few months of employment reports is we are seeing a rebound in participation rate
- Room to run on participation rate
- I expect demand to moderate
- There will be spillover from slower growth abroad, less stimulus from fiscal side
- Recovery can be sustained even as we bring inflation down
- Fiscal support will be a substantial drag this year
- On supply side, we expect to see continued improvement in labor force participation
- Plenty of room for businesses to reduce number of job openings
- I dont see Fed tightening policy as not being consistent with bringing inflation down and sustaining recovery
- Russia's invasion is a risk to upside inflation, downside on economic activity
- The longer the war persists, the greater the potential the risks to upside on inflation, and downside on growth
- China's zero Covid policy has potential to lengthen out supply chain constraints
- China is just another set of inflationary shock that is hitting the economy
- It is too early to have great confidence in what post pandemic, war new normal will be for US economy
- We need to see how economy evolves
- Fed is committed to bring inflation back to art 2% goal
- We are committed to keeping inflation expectations are anchored
- It will take more time than anybody would have thought for employment to go back to pre-Pandemic norms
- Reductions in balance sheet could come as soon at June after the decision made in May.
- Looks to move toward neutral rates in an expeditious manner
- in terms of pace of rate increases meeting to meeting, don't want to focus on that
- The combined effect will (policy to a more neutral rate expeditiously later this year
- I don't have a stopping rule percent on interest rates
- I don't want to be too will rigid in the appropriate course of policy this year and next
- I expect combined effect of moving policy to more neutral rate and reducing the balance sheet of bringing inflation down, moderating demand
- By moving expeditiously it gives us more options in the future
- We are in a time period of very high uncertainty
- The moderation of core inflation today gives me confidence will will achieve 2% inflation, but timeline unclear
- Today's economy shaped by unique set of circumstances
- We still have will anchored longer-term inflation expectations
- Quite a bit of capacity for labor demand to moderate by reducing job openings without need for layoffs
- balance sheet run off could be worth 2 to 3 additional rate hikes, but those estimates are uncertain
Her comments are tapping down on the inflation hopes from the better-than-expected core reading today. Although she is encouraged by today's inflation, she is concerned about potentially higher inflation from the Russian war and remains intent to get the rate to the neutral level.
Brainard has been nominated to the vice chair position and is expected to be confirmed as such, but that has not taken place yet. She still remains a voting member on the FOMC Board.
The stock market near the start of her speech had:
- Dow industrial average up 190.54 points or 0.56% at 34498.63
- S&P index up 32.53 points or 0.74% or 4445.07
- NASDAQ index up 133.55 points or 1.0% at 13545.50
- Russell 2000 up 31.17 points or 1.57% at 2011.50
At the conclusion of her interview,:
- Dow industrial average up 94.13 points or 0.27% at 34402.22
- S&P index up 18.69 points or 0.42% or 4431.23
- NASDAQ index up 93.63 points or 0.70% at 13505.58
- Russell 2000 up 25.16 points or 1.27% 2005.48