Federal Reserve Governor Lael Brainard said the U.S. central bank is ready to raise interest rates next month and begin shrinking its balance sheet in coming meetings.
“Given we have seen quite strong data, I do anticipate it will be appropriate at our next meeting to initiate a series of rate increases,” Brainard said Friday during a panel discussion at a conference in New York hosted by the University of Chicago Booth School of Business.
“We have a recovery today that is much stronger and faster than in the last cycle. So I do believe it will be appropriate to commence that runoff in the next few meetings,” added Brainard, who President Joe Biden has nominated to become Fed vice chair, pending confirmation by the Senate.
During their Jan. 25-26 meeting, Fed officials concluded that they would soon start raising rates from near zero and were on alert for persistent inflation that would justify a faster pace of tightening, according to minutes of the session released Wednesday.
Chair Jerome Powell told reporters after the meeting that officials were leaning toward moving in March to confront the hottest price rises in 40 years, and had agreed to begin shrinking the Fed’s massive $8.9 trillion balance sheet after liftoff. Investors see the Fed tightening policy by around 150 basis points during this year.
Brainard said raising rates and running down the balance sheet “will bring down inflation over time.”
“The market is aligned with that” she said, adding that this has been transmitted through to the real economy via changes in mortgage and lending rates, while credit conditions for loans have also tightened. “So we’ve already seen the kind of tightening facing households and businesses that is consistent with the economy’s outlook,” Brainard added.
