Fed's Brainard warns interest rates need to remain high for 'some time'

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Federal Reserve Vice Chair Lael Brainard said Wednesday that she expects the U.S. central bank to raise interest rates higher this year and to keep them elevated at those levels until scorching-hot inflation slows down. 

Speaking at a conference hosted by the Clearing House and Bank Policy Institute, Brainard stressed that policymakers remain focused on bringing inflation closer to the Fed's 2% goal and will need to push the interbank lending rate higher in order to do so.

"We are in this for as long as it takes to get inflation down," Brainard said. "So far, we have expeditiously raised the policy rate to the peak of the previous cycle, and the policy rate will need to rise further."

Investors are betting that central bank policymakers will approve a third consecutive 75 basis point interest rate hike when they meet again on Sept. 20-21. 

FED RAISES INTEREST RATES BY 75 BASIS POINTS IN ANOTHER HISTORIC MOVE TO TACKLE INFLATION

Jerome Powell, chairman of the US Federal Reserve, from right, Lael Brainard, vice chair of the board of governors for the Federal Reserve System, and John Williams, president and chief executive officer of the Federal Reserve Bank of New York, durin (Photographer: David Paul Morris/Bloomberg via Getty Images / Getty Images)

The current benchmark federal funds range of 2.25% to 2.50% is around the "neutral" level, meaning that it neither supports nor restricts economic activity. But Brainard – along with other Fed officials, including Chairman Jerome Powell, signaled that a restrictive stance will almost certainly be necessary as the central bank tries to pump the brakes on the economy.

"Monetary policy will need to be restrictive for some time to provide confidence that inflation is moving down to target," she said. 

Her comments echo those made by Powell in a speech he delivered two weeks ago at the Kansas Federal Reserve's annual economic symposium in Jackson Hole, Wyoming. In his message, Powell reiterated a pledge to "forcefully" fight inflation that is still running near the hottest pace in 40 years.

Federal Reserve Chair Jerome Powell arrives to speak at a news conference, Tuesday, March 3, 2020, to discuss an announcement from the Federal Open Market Committee, in Washington. ((AP Photo/Jacquelyn Martin) / AP Newsroom)

"While higher interest rates, slower growth and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses," Powell said. "These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain."

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Even with four consecutive interest rate hikes, including two back-to-back 75-basis-point increases, Powell stressed that the Fed is not in a place to "stop or pause" — an unwelcome sign for investors who were predicting a rate cut next year.

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