Fed’s Lael Brainard Says Too Soon to Say If Inflation Has Peaked

“If we don’t see the kind of deceleration in monthly inflation prints, if we don’t see some of that really hot demand starting to cool a little bit, then it might well be appropriate to have another meeting where we proceed at the same [half-percentage-point] pace,” Ms. Brainard said during an interview on CNBC on Thursday. “If we are seeing a deceleration in the monthly prints, it might make sense to be proceeding at a slightly slower pace.”

Ms. Brainard said it was difficult to envision a scenario in which the Fed wouldn’t raise interest rates at that September meeting. “Right now, it’s very hard to see the case for a pause,” said Ms. Brainard, who serves as an influential member of the Fed’s policy leadership team. “We’ve still got a lot of work to do to get inflation down to our 2% target,” she said.

With officials largely united on the need for half-point increases at the Fed’s June and July policy meetings, the debate has shifted to what should occur after that. The Fed raise interest rates by a half percentage point last month for the first time since 2000, pushing its benchmark short-term rate to a range between 0.75% and 1%.

With two more half-point increases by the end of July, the rate would rise to a range between 1.75% and 2%, returning rates to levels that prevailed before the Covid-19 pandemic prompted the Fed to slash rates to zero in March 2020. An additional half-percentage-point increase in rates beyond that would push rates to the highest level reached during the Fed’s 2015-18 interval of rate rises.

“I’m going to be looking for a consistent string of data on both the…labor market coming into better balance and, of course, importantly, a string of decelerating inflation data to feel more confident,” said Ms. Brainard.

In recent weeks, a few regional Fed presidents have said they would support pressing ahead with an aggressive pace of rate increases in September if monthly inflation readings remain elevated.

A few others have said they expect inflation to slow enough to justify the central bank dialing back its rate rises to quarter-point moves at that time, and one official, Atlanta Fed President

Raphael Bostic,

has said he is optimistic the central bank could take a break from raising rates at the September meeting.

Ms. Brainard said that bringing down inflation remains the central bank’s “No. 1 challenge right now.” Her comments reinforced recent remarks from Fed Chairman

Jerome Powell.

In an interview with The Wall Street Journal last month, he laid out a relatively high bar to slow down rate increases. “This is not a time for tremendously nuanced readings of inflation,” he said. “We need to see inflation coming down in a convincing way. Until we do, we’ll keep going.”

Consumer prices rose 6.3% in April from a year earlier, slowing from 6.6% in March, as measured by the Commerce Department’s personal-consumption expenditures price index, which is the Fed’s preferred gauge. So-called core prices—which exclude volatile food and energy prices—increased 4.9% in April from a year earlier, down from 5.2% in the year through March.

The Fed initiated this week a program that will allow $47.5 billion in Treasury securities and mortgage bonds to passively run off the central bank’s $8.9 trillion asset portfolio every month. In September, up to $95 billion in securities will be allowed to run off every month, further reducing monetary stimulus.

Ms. Brainard said she was heartened to see that borrowing costs have increased in ways that could begin to cool the economy. “Financial conditions have tightened quite a lot,” she said. “They’re much tighter than they were pre-pandemic, for instance. You can see that there’s room for businesses to bring down markups, for margins to compress.”

Write to Nick Timiraos at [email protected]

“If we don’t see the kind of deceleration in monthly inflation prints, if we don’t see some of that really hot demand starting to cool a little bit, then it might well be appropriate to have another meeting where we proceed at the same [half-percentage-point] pace,” Ms. Brainard said during an interview on CNBC on Thursday. “If we are seeing a deceleration in the monthly prints, it might make sense to be proceeding at a slightly slower pace.”

Ms. Brainard said it was difficult to envision a scenario in which the Fed wouldn’t raise interest rates at that September meeting. “Right now, it’s very hard to see the case for a pause,” said Ms. Brainard, who serves as an influential member of the Fed’s policy leadership team. “We’ve still got a lot of work to do to get inflation down to our 2% target,” she said.

With officials largely united on the need for half-point increases at the Fed’s June and July policy meetings, the debate has shifted to what should occur after that. The Fed raise interest rates by a half percentage point last month for the first time since 2000, pushing its benchmark short-term rate to a range between 0.75% and 1%.

With two more half-point increases by the end of July, the rate would rise to a range between 1.75% and 2%, returning rates to levels that prevailed before the Covid-19 pandemic prompted the Fed to slash rates to zero in March 2020. An additional half-percentage-point increase in rates beyond that would push rates to the highest level reached during the Fed’s 2015-18 interval of rate rises.

“I’m going to be looking for a consistent string of data on both the…labor market coming into better balance and, of course, importantly, a string of decelerating inflation data to feel more confident,” said Ms. Brainard.

In recent weeks, a few regional Fed presidents have said they would support pressing ahead with an aggressive pace of rate increases in September if monthly inflation readings remain elevated.

A few others have said they expect inflation to slow enough to justify the central bank dialing back its rate rises to quarter-point moves at that time, and one official, Atlanta Fed President

Raphael Bostic,

has said he is optimistic the central bank could take a break from raising rates at the September meeting.

Ms. Brainard said that bringing down inflation remains the central bank’s “No. 1 challenge right now.” Her comments reinforced recent remarks from Fed Chairman

Jerome Powell.

In an interview with The Wall Street Journal last month, he laid out a relatively high bar to slow down rate increases. “This is not a time for tremendously nuanced readings of inflation,” he said. “We need to see inflation coming down in a convincing way. Until we do, we’ll keep going.”

Consumer prices rose 6.3% in April from a year earlier, slowing from 6.6% in March, as measured by the Commerce Department’s personal-consumption expenditures price index, which is the Fed’s preferred gauge. So-called core prices—which exclude volatile food and energy prices—increased 4.9% in April from a year earlier, down from 5.2% in the year through March.

The Fed initiated this week a program that will allow $47.5 billion in Treasury securities and mortgage bonds to passively run off the central bank’s $8.9 trillion asset portfolio every month. In September, up to $95 billion in securities will be allowed to run off every month, further reducing monetary stimulus.

Ms. Brainard said she was heartened to see that borrowing costs have increased in ways that could begin to cool the economy. “Financial conditions have tightened quite a lot,” she said. “They’re much tighter than they were pre-pandemic, for instance. You can see that there’s room for businesses to bring down markups, for margins to compress.”

Write to Nick Timiraos at [email protected]