Brainard cites Delta in dovish speech

Lael Brainard of the Federal Reserve Board of Governors warned that the Delta variant is slowing the recovery necessary for a tighter monetary policy.

Speaking to the National Association of Business Economics on September 27, Brainard said progress on employment had stalled as the pandemic reasserts itself.

In her speech, Brainard focused on the bumpy progress towards recovering pre-pandemic employment levels. She noted that school closures and Covid-19 infections were impeding many from resuming work. The Fed governor emphasised that the pandemic made economic forecasting difficult.

Amid talk of tapering the Federal Reserve’s asset purchases, Brainard said that “employment is still a bit short of the mark on what I consider to be substantial further progress”. The Federal Open Market Committee requires “substantial further progress” towards the Federal Reserve’s dual mandate before it will start a taper.

Brainard was more optimistic on inflation, saying that she expected elevated rates to decline towards the Fed’s 2% target. Personal consumption expenditure inflation, the FOMC’s preferred measure, hit 4.2% in July 2021, modestly above the 4% recorded in May and June.

The Fed governor added it was easier to reduce moderately high inflation than to boost a below-target rate.

At its September 21–22 meeting, the FOMC held the policy rate at 0–0.25%. It also voted to continue asset purchases at a rate of at least $120 billion per month, a rate it first adopted in December 2020. However, Fed chair Jerome Powell hinted the committee would begin reducing asset purchases from its next meeting in the first week of November.