Lael Brainard predicts the Fed will engineer a soft economic landing.

Lael Brainard, a Federal Reserve governor whom President Biden appointed as the new central bank vice chairman, said the Fed would clearly communicate its plans to cut economic support — and suggested the labor market would continue to grow even if the Fed withdrew its aid and inflation began to subside.

Ms. Brainard was vetted before the Senate Banking Committee on Thursday. She answered questions about her qualifications and opinions on the Fed’s role in preparing the financial system for climate change and the outlook for the US economy.

In a hearing marked by limited controversy – one that suggested Ms Brainard could enjoy bipartisan support – the candidate expressed her will to tackle high and rising prices by cutting Fed aid to the economy. ‘economy. The central bank is already winding down its bond-buying program and has signaled that it may soon raise interest rates and start slashing assets in a bid to further cool the economy.

“I think we can see inflation return to target as the jobs picture continues to brighten,” Ms. Brainard said, after noting that the Fed would clearly communicate its plans to withdraw support. “There are short-term constraints there that I think are preventing people from getting back into the workforce. As these are lifted, I think we will have continued gains.

The unemployment rate has fallen, but millions of workers are still absent from the labor market compared to before the pandemic, and many employers are complaining of not finding employees, suggesting that health and Other challenges are keeping many people on the sidelines for now. . At the same time, price inflation is fast, with a report released on Wednesday showing a key price index rose in December at the fastest pace since 1982.

Ms Brainard acknowledged that the pandemic imbalances that have rattled global shipping and shuttered factories are part of what is driving high inflation today – and that there is little the Fed policies can do to address these issues. supply. But she pointed out that Fed policies that affect borrowing costs can have a significant impact on cooling demand.

“We have a set of tools – they are very effective – and we will use them to bring inflation down,” Ms Brainard said.

Fed officials have increasingly signaled that they plan to raise interest rates in 2022 to prevent high inflation from becoming permanent. Markets increasingly expect four rate hikes in 2022, which would put the Fed’s short-term policy interest rate slightly above 1%.

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