Drew Angerer | Getty Images Federal Reserve Governor Lael Brainard, who usually favors loose policies and low interest rates, said on Tuesday that the central bank must act quickly and aggressively to reduce inflation. In a speech to the Minneapolis Fed, Brainard said tightening the policy would include a rapid decline in the balance sheet and a steady rate hike. Her comments showed that interest rate movements could be higher than the traditional movements of 0.25 percentage points. “Currently, inflation is very high and is subject to upward risks,” she said in prepared remarks. “The Commission is prepared to take stronger action if inflation indicators and inflation expectations indicate that such an action is justified.” The Fed has already approved an increase in interest rates: a 0.25% increase at the March meeting which was the first in more than three years and probably one of many this year. In addition, markets expect the Fed to present a plan at its May meeting to spend some of the nearly $ 9 trillion in assets, mainly government bonds and mortgage-backed securities, on its balance sheet. According to Brainard comments on Tuesday, this process will be fast. “The Commission will continue to methodically tighten monetary policy through a series of interest rate hikes and begin to reduce the balance sheet rapidly once it meets in May,” he said. “Given that the recovery was much stronger and faster than in the previous cycle, I expect the balance sheet to shrink significantly faster than in the previous recovery, with significantly higher ceilings and a much shorter phase time to peaks. ceilings compared to 2017–19. “ At the time, the Fed allowed $ 50 billion in revenue to be discarded each month from expiring bonds and reinvested the rest. Market expectations are that the pace could double this time. The moves are in response to the fastest-growing inflation in 40 years, well above the Fed’s 2% target. Market expectations are for interest rate hikes in each of the remaining six meetings this year, possibly a total of 2.5 percentage points.
