WASHINGTON (Reuters) – The United States is making progress towards the Fed’s maximum employment and 2% inflation targets, but the depth of the remaining problem still requires the central bank not to start tightening monetary policy, the Fed governor said Lael Brainard Brain on Tuesday.
“We are seeing welcome progress and I expect further progress in the coming months,” said Brainard in a statement prepared for delivery to the Economic Club of New York. But “jobs are down 8-10 million from what we would have seen without the pandemic. And it will be important to see sustained progress in inflation, “not just a temporary jump.
Some of the factors driving the current strong growth, including budget spending and households’ rush to benefit from wider economic reopening, are likely to fade over time, noted Brainard, another reason the Fed shouldn’t pull out too soon .
“If we keep our results-oriented approach unchanged during the temporary reopening spurt, it will help ensure the necessary economic momentum” to ensure that inflation hits and stays the Fed’s target and that people have as much time as possible to theirs Resuming old jobs or finding new ones, she said.
The Fed is approaching a few critical months as it seeks to spot an economy that is going through an unprecedented restart moment after a pandemic. What is difficult to assess in normal times – assessing the course of inflation or assessing which employment metrics are most meaningful – has become even more complex in an environment in which consumption and work patterns have been turned upside down.
How these issues will be resolved will determine when the Fed will begin cutting back on its $ 120 billion monthly bond purchases and then eventually raise interest rates from near zero current levels.
Brainard is one of the stronger voices who plead for patience before changing anything.
The fact that inflation is being driven in part by unexpected computer chip shortages and a rush for used cars, for example, is a reason to wait – as is the uncertainty about why people seem reluctant to take jobs.
Some of this data “noise” will subside by the fall, said Brainard.
While she said she would be “alert” to signs of higher inflation, she also warned of “preventive tightening” that could take people out of jobs.
Reporting by Howard Schneider; Editing by Andrea Ricci