Inflation has declined in recent months, but the Federal Open Market Committee will likely need to continue pursuing a restrictive policy stance to bring inflation back down to the committee’s 2% goal, Federal Reserve Vice Chair Lael Brainard said today.
In a speech at the University of Chicago, Brainard pointed to tentative signs that wage growth is moderating, with the growth in average hourly earnings having recently softened. She also noted that house prices and rents for new leases have recently declined. These, along with other economic indicators, are signs that the nation isn’t experiencing a 1970s style wage–price spiral, she said. “It remains possible that a continued moderation in aggregate demand could facilitate continued easing in the labor market and reduction in inflation without a significant loss of employment.”
Still, Brainard warned that substantial uncertainty remains, with further shocks possible from the war in Ukraine and the pandemic. “Even with the recent moderation, inflation remains high, and policy will need to be sufficiently restrictive for some time to make sure inflation returns to 2% on a sustained basis,” she said.
