Lael Brainard: Restoring price stability in an uncertain economic environment

Speech by Ms Lael Brainard, Member of the Board of Governors of the Federal Reserve System, at the "Shocks and Aftershocks: Finding Balance in an Unstable World" 2022 Annual Meeting of the National Association for Business Economics, Chicago, Illinois, 10 October 2022.

The views expressed in this speech are those of the speaker and not the view of the BIS.

It is a pleasure to join this discussion today. Inflation is high in the United States and around the world reflecting the lingering imbalance between robust demand and constrained supply caused by the pandemic and Russia's war against Ukraine. Global supply chains have eased significantly, but by some measures they are still more constrained than at nearly any time since the late 1990s. High inflation places a burden on all Americans, but especially lower-income families, who spend three-fourths of their income on necessities-more than twice the share spent by higher-income families. The Federal Reserve has tightened policy strongly to bring inflation down, and U.S. tightening is being amplified by concurrent foreign tightening. We are starting to see the effects in some areas, but it will take some time for the cumulative tightening to transmit throughout the economy and to bring inflation down. Uncertainty remains high, and I am paying close attention to the evolution of the outlook as well as global risks.

Higher interest rates are working to temper demand and bring it into better alignment with supply, which is still constrained. Output has decelerated so far this year by more than anticipated, suggesting that policy tightening is having some effect. Real gross domestic product (GDP) declined at an annual rate of roughly 1 percent in the first half. Real private domestic final purchases stepped down from a 6.4 percent pace last year to an annual rate of only 1.3 percent during the first half of this year.