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Lael Brainard says fighting inflation is Fed’s ‘most important task’

Lael Brainard, Joe Biden’s nominee for vice-chair of the Federal Reserve, told Congress that the fight against high inflation is the US central bank’s “most important task” in an embrace of the Fed’s pivot towards tighter monetary policy.

“Inflation is too high, and working people around the country are concerned about how far their pay cheques will go,” said Brainard, a Fed governor, in prepared remarks delivered before the Senate banking committee on Thursday.

“Our monetary policy is focused on getting inflation back down to 2 per cent while sustaining a recovery that includes everyone. This is our most important task,” she added.

If confirmed by the Senate, Brainard, 60, would become second-in-command at the Fed after a steady rise up the ranks of US economic policymaking. She served as a senior Treasury official for international affairs under former president Barack Obama and almost eight years on the board of the Fed.

The central bank is moving quickly towards tighter monetary policy following a pivot late last year in its approach to inflation and the risk it poses to the economic recovery.

During his confirmation hearing on Tuesday, Jay Powell, Fed chair, warned that high inflation was a “severe threat” to the labour market and the prospects of a long economic expansion.

Brainard is generally regarded as dovish on monetary policy, but her testimony suggested she was on board with a more aggressive approach to fighting inflation. During her opening statement, she will also cite her international experience to highlight her determination to quash excessive price rises.

“In some foreign countries, I saw up close how high inflation hurts workers and families, especially the most vulnerable,” she will say.

The consumer price index increased at a 7 per cent year-on-year pace last month, a step up from the 6.8 per cent rate registered in November and the largest jump since June 1982.

Fed officials have already indicated their support for three interest rate rises next year, having accelerated the pace at which they are winding down a huge bond-buying stimulus programme. “Lift-off” of the Fed’s main policy rate is now broadly expected in March, with a reduction in the $9tn balance sheet kicking off later in the year.

Brainard is expected to face tough questions, particularly from Republican lawmakers who are concerned she will lead what Bill Hagerty, senator from Tennessee, described as an “activist bloc” of Biden appointees who would sideline Powell and impose a Democratic policy agenda on the Fed.

Brainard sought to dismiss such concerns in her opening remarks. “I am committed to the independent and non-partisan status of the Federal Reserve. If confirmed, I look forward to supporting chair Powell in carrying out the responsibilities assigned to the Federal Reserve and in fostering transparent communication and accountability to you and the American people,” she said.

While Brainard is generally aligned with Powell and other members of the Federal Open Market Committee on issues related to monetary policy, she has carved out a distinct voice at the central bank on supervisory matters.

During her tenure at the Fed, she assumed a tougher stance than her colleagues on how Wall Street should be policed, dissenting more than 20 times on board votes pertaining to rule changes that would ease regulations on the largest financial institutions.

That earned her plaudits from progressive Democrats, who had for months lobbied the Biden administration to replace Powell with Brainard.

Her efforts to strengthen the guidelines on how banks should service disadvantaged communities also burnished her reputation among members of Biden’s party, as did her push for the Fed to more proactively incorporate climate-related financial risks into its oversight.

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