Brainard warns US rates to stay high, notes global impact

WASHINGTON (AP) — Federal Reserve Vice Chair Lael Brainard said Friday that U.S. interest rates will likely have to remain high for an extended period to combat inflation, capping a week of tough rhetoric by Fed officials.

In remarks at a conference hosted by the Federal Reserve Bank of New York, Brainard said that international turmoil still threatens to disrupt global supplies of commodities and manufactured parts, a key factor pushing inflation higher. Additional inflationary shocks from Russia's invasion of Ukraine, China's COVID lockdowns, or severe weather events globally “cannot be ruled out,” she said.

“Weather conditions in several areas, including China, Europe, and the United States, are exacerbating price pressures through disruptions to agriculture, shipping, and utilities,” Brainard said.

Last week, the Fed raised its benchmark interest rate by three-quarters of a percentage point for the third straight time, a heftier increase than its usual quarter-point hike, as it fights inflation that recently reached a four-decade high. The Fed has pushed its benchmark short-term rate to a range of 3% to 3.25%, the highest since early 2008, up from nearly zero in March. That is the most rapid pace of increases in four decades.

Interest rates will need to stay high “for some time to have confidence that inflation is moving back” to the Fed's 2% target, she added. “For these reasons, we are committed to avoiding pulling back prematurely.”

Brainard also addressed concerns that rapid interest rate hikes by central banks around the world are raising the risks of global financial turmoil and recession.

Nine central banks accounting for half the global economy have lifted their key interest rate by 1.25 percentage points in the past six months, Brainard said, a “rapid...