President Joe Biden’s nominee for vice chairwoman of the Federal Reserve testified on Thursday that getting inflation under control is the top priority of the central bank this year.
Lael Brainard, a Democrat who currently serves on the Fed’s Board of Governors, appeared before the Senate Banking Committee for her confirmation hearing and faced several questions about the higher prices.
“Inflation is too high, and working people around the country are concerned about how far their paychecks will go,” she told lawmakers. “Our monetary policy is focused on getting inflation back down to 2% while sustaining a recovery that includes everyone. This is our most important task.”
Consumer prices increased 7% in the 12 months ending in November, the fastest pace since 1982, according to a report released by the Bureau of Labor Statistics on Wednesday. Additionally, producer prices increased by nearly 10% for the year ending in December, the highest rate of growth since the Labor Department began keeping records.
The central bank forecast last year that inflation would be far lower. After meeting in March 2021, Fed officials projected that inflation would be running at 2.4% by the end of the year, above its 2% target but well below where it ended up.
During the Thursday hearing, Sen. John Kennedy bluntly asked Brainard, with respect to her predictions, how she got it so wrong.
“I think nobody got the pandemic right. The pandemic is unprecedented —” she said before Kennedy interjected to emphasize that he was asking about inflation and not the pandemic. The Louisiana Republican asked if she thought inflation is being caused by the pandemic, hinting that other causes, such as massive spending by Congress, were also at play.
“I certainly think that supply and demand imbalances that have been the biggest contributors to the very high inflation we have seen are directly attributed to supply chain issues, distortions in demand,” Brainard responded.
Some on the Left have taken to blaming producers of goods for high prices as rising inflation pulls down Biden’s approval ratings and threatens Democrats’ prospects in the midterm elections.
Sen. Elizabeth Warren, one of Congress’s fiercest antitrust enforcers, raised the notion that major companies with little competition have been also driving up the cost of goods to net even greater profits.
“Dealing with rising consumer prices also involves the [Federal Trade Commission], the Department of Justice, in breaking up monopolies and investigating crooked price-fixing schemes that also increase costs for hard-working families,” Warren said.
The Massachusetts Democrat asked whether initiatives the Biden administration has taken to address market competition have a role in pushing back rising prices.
“I certainly think that we’re hearing from working families around the country about inflation, and some of it is in areas where we’re seeing those kinds of supply dynamics, but again, we do have a powerful tool, and we are going to use it to bring inflation down over time,” Brainard said in reference to hiking interest rates.
While inflation has been going up, unemployment has been going down. In December, the unemployment rate fell below 4% for the first time since before the pandemic, down from its peak of 14.7% in April 2020. Still, Brainard pointed out that the economy has a way to go before employment rebounds to its pre-pandemic highs.
“Unemployment has come down very rapidly, which is very welcome, but we still have between 3.5 and 5 million fewer jobs than we would have in the absence of the pandemic, and some of those are going to come back more slowly,” Brainard said. “That unemployment rate is higher when you take into account nonparticipation.”
Brainard’s testimony came the same week that Fed Chairman Jerome Powell testified before Congress. In a nod to maintaining the central bank’s stability, he was renominated to the role by Biden last year.
The Fed is set to hike interest rates several times this year, with the first increase likely coming in March.