Getting inflation down is ‘of paramount importance’: US Fed

Washington: US Federal Reserve Governor Lael Brainard has said it is “of paramount importance” to get inflation down, noting that the central bank is “prepared to take stronger action” if inflation indicators show such action is warranted.

“Currently, inflation is much too high and is subject to upside risks,” Brainard, US President Joe Biden’s nominee to serve as the central bank’s Vice Chair, said in prepared remarks at a virtual event held by the Federal Reserve Bank of Minneapolis.

“All Americans are confronting higher prices, but the burden is particularly great for households with more limited resources,” she said, adding that lower-income households “disproportionately” feel the burden of high inflation.

Lower-income families expend a greater share of their income on necessities, have smaller financial cushions and may have less ability to switch to lower-priced alternatives, she said.

US personal consumption expenditures (PCE), the Fed’s preferred inflation measure, surged 6.4 per cent in February 2021, the Commerce Department reported last week. The index is well above the Federal Reserve’s 2 per cent target on inflation.

The core PCE, which excludes the volatile food and energy prices, was up 5.4 per cent in February from the same period in 2021, marking the biggest jump in nearly four decades.

Despite downside risks posed by geopolitical events, including the Russia-Ukraine conflict, the US economy entered this period of uncertainty “with considerable momentum in demand and a strong labour market,” Brainard added.

As of the March labour report, payroll employment has increased at a pace of 600,000 jobs per month over the past six months, and the unemployment rate has fallen by a percentage point, she said. Latest data from the Labor Department showed that the unemployment rate in March dropped by 0.2 percentage point to 3.6 per cent, just slightly above the pre-pandemic level of 3.5 per cent.

At its policy meeting, the Fed raised its benchmark interest rate by a quarter percentage point to a range of 0.2 to 0.5 per cent from near zero, marking its first rate hike since 2018 and a major step in exiting from the ultra-loose monetary policy enacted at the start of the pandemic.

Image courtesy of (brookings.edu)

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