The Fed is set to begin “rapidly” shrinking its $9 trillion balance sheet at its next policy meeting in May and is preparing for “stronger” action in raising interest rates to lower inflation, a senior U.S. central bank official said. Express.

Lael Brainard, now a member of the Fed’s board of governors and awaiting Senate confirmation as the next vice chairman, said Tuesday that the Fed’s “most important task” is to moderate the recent rise in consumer prices, which has left consumers brought a disproportionate burden. low- and middle-income families.

“Reducing inflation is critical,” she said in prepared remarks at a conference hosted by the Fed’s Minneapolis branch. “As a result, the Committee will continue methodically to tighten monetary policy through a series of rate hikes and begin rapid balance sheet reduction as soon as possible at our May meeting.”

She also added that the Fed is ready to take “more forceful action” in tightening monetary policy if economic data proves, hinting at tacit support for more aggressive moves, including doubling the federal funds rate and delivering on the upcoming The meeting raised interest rates by half a percentage point.

Wall Street is increasingly expecting at least two such corrections in 2022 as grow Many Fed officials have expressed a willingness to quickly reach a more “neutral” level of policy that neither helps nor constrains economic growth by the end of the year. Neutral estimates are between 2.3% and 2.5%.

Stronger action could also mean a faster contraction in the Fed’s holdings of Treasuries and agency mortgage-backed securities, as the central bank tries to boost the economy and ensure smooth functioning of financial markets at the start of the pandemic. , the holdings of these securities will inflate. Chairman Jay Powell suggested that the minutes of the March policy meeting, due on Wednesday, would include details on how quickly that process could happen.

Economists expect U.S. Treasuries to eventually grow at $60 billion a month and agency MBS at $45 billion a month.

In outlining her case, Brainard cited former Federal Reserve Chairman Paul Volcker, who in the late 1970s led to a painful recession by aggressively tightening monetary policy to curb inflation. He had previously warned that runaway inflation “would be the biggest threat to continued economic growth.” . . and ultimately, employment”.

She warned that those at greatest risk were families with more limited resources.

Brainard said the Russian invasion of Ukraine would put upward pressure on inflation and could push up already-high gasoline and food prices. Supply chain bottlenecks are likely to widen further, especially given that China has announced new lockdowns to curb the spread of Covid-19, developments that further underscore the need for the Federal Reserve to tighten monetary policy in a “rapid” manner.