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Brainard tells senators reining in inflation is top Fed priority

Toomey criticizes nominee's opposition to loosening regulations

Lael Brainard, nominee to serve as vice chair of the Federal Reserve Board, testifies to the Senate Banking Committee on Thursday.
Lael Brainard, nominee to serve as vice chair of the Federal Reserve Board, testifies to the Senate Banking Committee on Thursday. (Tom Williams/CQ Roll Call)

Federal Reserve Board member Lael Brainard told senators Thursday that taming inflation is the regulator’s “most important task,” in testimony a day after a data report showed annual price increases reached a 40-year high.

Brainard appeared before the Senate Banking Committee for a confirmation hearing to be the Fed’s vice chair. The Democrat first joined the board in 2014.

“Inflation is too high, and working people around the country are concerned about how far their paychecks will go,” Brainard said in her opening statement. “Our monetary policy is focused on getting inflation back down to 2 percent while sustaining a recovery that includes everyone.”

Data released Wednesday by the Labor Department showed the consumer price index rose 7 percent in December compared to the same period the year before, the highest reading since 1982. The Fed’s dual mandate involves maintaining price stability as well as boosting employment, tasks that sometimes call for different policy responses.

In response to a question from Banking Chairman Sherrod Brown, D-Ohio, Brainard said the actions the Fed is taking on monetary policy will be able to bring down inflation without undermining job growth. The unemployment rate was below 4 percent in December, but the labor market remains volatile as the omicron variant of the coronavirus races through the country. 

“Our monetary policy framework prioritizes stable prices and maximum employment on equal footing,” Brainard said. “We are taking actions on the monetary policy front that I have confidence will be bringing inflation down while continuing to allow the labor market to return to full strength over time.”

Federal Reserve Chairman Jerome Powell said Tuesday at his confirmation hearing for a second term that the economy is now strong enough for the central bank to ease off the support it provided throughout the pandemic. 

Since November, the Fed has been tapering the monthly bond purchases used to bring stability to the economy during the pandemic, and markets have begun to speculate about an interest rate increase as early as March. 

Brown stressed the importance of maintaining gains workers have made in the recovery from the pandemic. 

“It isn’t just the jobs numbers – it’s the quality of those jobs,” Brown said. “Workers are demanding raises, and they’re finally getting them. They’re changing jobs at record rates, because people finally have some options.” 

Sen. Patrick J. Toomey, R-Pa., the panel’s highest-ranking Republican, slammed the Fed’s handling of inflation during the pandemic and the monetary policy framework adopted in 2020, placing part of the blame on Brainard.

The Fed board adopted the framework and navigated the pandemic with a Republican majority under the leadership of Powell and former Vice Chair for Supervision Randal Quarles, both Republicans. 

“The Fed must also learn from its mistakes,” Toomey said. “That begins with the Fed’s new monetary policy framework, of which Governor Brainard was an author and an outspoken advocate. The framework subordinated the Fed’s price stability mandate to try and maximize employment by allowing inflation to run hot.”

The framework considers jobs numbers within specific demographic groups, especially communities left behind in times of prosperity, in addition to employment as a whole. 

“This framework would keep in place an inflation tax on all Americans while the Fed decided which sub-groups of people should have faster job growth over others,” Toomey said. “The problem is monetary policy can never equalize employment rates amongst different groups.”

Toomey also criticized Brainard’s opposition to regulatory easing by the Fed under Powell, noting that the board’s lone Democrat voted against her colleagues 20 times, and said her stance on climate risk went beyond the Fed’s mandate. 

“Not only does the Fed lack expertise in environmental matters, but there is no reason to believe that global warming poses a systemic risk to the financial system,” he said, adding that banks face little to no physical risk from extreme climate events. 

Brainard said it’s important for the Fed to examine risks that have low probability of happening, but would cause huge damage if they do.

“Of course, I wouldn’t have expected us to need to study pandemics five years ago either, and yet a lot of our policymaking over the last two years has been under the cloud of a very complicated set of economic conditions and financial risk associated with a natural event,” Brainard said. “It’s our job just to be very attentive to potential risks to the financial system.”

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