Economy

WASHINGTON — Treasury Secretary Janet L. Yellen said on Wednesday that the United States would continue taking steps to cut Russia off from the global financial system in response to its invasion of Ukraine and argued that the sanctions already imposed had taken a severe toll on the Russian economy.She addressed the House Financial Services Committee as the United States rolled out a new array of sanctions on Russian banks and state-owned enterprises and on the adult children of President Vladimir V. Putin. The White House also announced a ban on Americans making new investments in Russia no matter where those investors are based.“Our goal from the outset has been to impose maximum pain on Russia, while to the best of our ability shielding the United States and our partners from undue economic harm,” Ms. Yellen told lawmakers.The measures introduced on Wednesday included “full blocking” sanctions against Sberbank, the largest financial institution in Russia, and Alfa Bank, one of the country’s largest privately owned banks.Sberbank is the main artery in the Russian financial system and holds over a third of the country’s financial assets. In February, the Treasury announced limited sanctions against Sberbank, but Wednesday’s sanctions, a senior Biden administration official said, will effectively freeze relations between the bank and the U.S. financial system.The administration also announced sanctions against two adult daughters of Mr. Putin: Katerina Tikhonova and Maria Putina, who has been living under an assumed name, Maria Vorontsova. Others connected to Russian officials with close ties to Mr. Putin will also face sanctions, including the wife and daughter of Russia’s foreign minister, Sergey Lavrov, and members of Russia’s security council, including former Prime Minister Dmitri Medvedev. The official said those people would be effectively cut off from the U.S. banking system and any assets held in the United States.President Biden said on Wednesday that the new sanctions would deal another blow to the Russian economy.“The sense of brutality and inhumanity, left for all the world to see unapologetically,” Mr. Biden said, describing Russia’s actions as war crimes. “Responsible nations have to come together to hold these perpetrators accountable, and together with our allies and our partners we’re going to keep raising the economic costs and ratchet up the pain for Putin and further increase Russia’s economic isolation.”Experts suggested that the latest round of sanctions were unlikely to compel Mr. Putin to change course. Hundreds of American businesses have pulled out of Russia in recent weeks, making new investments unlikely.“The asset freezes on the additional banks aren’t nothing, but this isn’t the most significant tranche we’ve seen to date,” said Daniel Tannebaum, a partner at Oliver Wyman who advises banks on sanctions.Other American agencies are joining the effort to exert pressure on Russia.In a news conference on Wednesday, officials from the Justice Department and the F.B.I. also announced a series of actions and criminal charges against Russians, including the takedown of a Russian marketplace on the dark web and a botnet, or a network of hijacked devices infected with malware, that is controlled by the country’s military intelligence agency.Justice Department officials also celebrated the seizing of the Tango, a superyacht owned by the Russian oligarch Viktor F. Vekselberg, and charged a Russian banker, Konstantin Malofeev, with conspiring to violate U.S. sanctions. Mr. Malofeev is one of Russia’s most influential magnates and among the most prominent conservatives in the country’s Kremlin-allied elite. (The indictment renders his surname as Malofeyev.)At the hearing, Ms. Yellen told lawmakers that she believed Russia should be further isolated from the geopolitical system, including being shut out of international gatherings such as the Group of 20 meetings this year, and should be denounced at this month’s meetings of the International Monetary Fund and the World Bank. She added that the United States might not participate in some G20 meetings that are being held in Indonesia this year if Russians attended.Ms. Yellen, whose department has been developing many of the punitive economic measures, rebutted criticism that the penalties leveled so far had not been effective, in part because there are some exceptions to allow Russia to sell energy.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

WASHINGTON — The Justice Department said on Wednesday that it had charged a Russian oligarch with violating U.S. sanctions and unveiled additional measures intended to counter Russian money laundering and disrupt online criminal networks in an effort to enforce financial penalties on Moscow.The moves came as the United States has ratcheted up pressure on the Kremlin and some of the wealthiest Russians in light of growing evidence of atrocities in Ukraine and as Attorney General Merrick B. Garland said the United States was helping its European partners investigate potential war crimes.The oligarch, Konstantin Malofeev, 47, is widely considered one of Russia’s most influential business moguls — he is said to have deep ties to President Vladimir V. Putin — and is among the more prominent conservatives in the country’s Kremlin-allied elite. (The indictment renders his surname as Malofeyev.)The actions demonstrated the reach of a task force created last month to find and seize the assets of wealthy Russians who violate U.S. sanctions on Russia, and the penalties appeared meant to enforce the far-reaching economic sanctions that the United States has imposed along with European allies.“The Justice Department will use every available tool to find you, disrupt your plots and hold you accountable,” Mr. Garland said, adding that officials had moved “to prosecute criminal Russian activity.” He pointed to the seizure this week of a $90 million yacht owned by Viktor F. Vekselberg, who was previously targeted with sanctions over Russian interference in the 2016 presidential election.Mr. Garland said law enforcement was also pursuing Mr. Malofeev for illegally transferring money in violation of sanctions.The criminal charges against Mr. Malofeev, which were unsealed in Federal District Court in Manhattan, follow an indictment filed there in March against a former Fox News employee, John Hanick. Mr. Hanick, an American citizen, is accused of working for the oligarch from 2013 to 2017, and was arrested in February in London.Justice Department officials said in a statement on Wednesday that the charges against Mr. Malofeev were in connection with his hiring of Mr. Hanick “to work for him in operating television networks in Russia and Greece and attempting to acquire a television network in Bulgaria.”The U.S. Treasury Department, in imposing sanctions on Mr. Malofeev in December 2014, called him “one of the main sources of financing for Russians promoting separatism in Crimea.”Damian Williams, the U.S. attorney for the Southern District of New York, said in a statement on Wednesday that the sanctions barred Mr. Malofeev from paying or receiving services from American citizens, or from conducting transactions with his property in the United States.Russia-Ukraine War: Key DevelopmentsCard 1 of 4U.N. meeting. More

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Minutes from the Federal Reserve’s March meeting showed that central bankers were preparing to shrink their portfolio of bond holdings imminently while raising interest rates “expeditiously,” as the central bank tries to cool off the economy and rapid inflation.Fed officials are making money more expensive to borrow and spend in a bid to slow shopping and business investment, hoping that weaker demand will help to tame prices, which are now climbing at the fastest pace in four decades.Central bankers raised interest rates by a quarter of a percentage point in March, their first increase since 2018 — and the minutes showed that “many” officials would have preferred an even bigger rate move and were held back only by uncertainty tied to Russia’s invasion of Ukraine. Markets now expect the Fed to make half-point increases in May and possibly June, even as they begin to withdraw additional support from the economy by shrinking their balance sheet.The balance sheet stands at nearly $9 trillion — swollen by pandemic response policies — and Fed officials plan to shrink it by allowing some of their government-backed bond holdings to expire starting as soon as May, the minutes showed. That will help to further push up interest rates, potentially leading to slower growth, more muted hiring and weaker wage increases. Eventually, the theory goes, the chain reaction should help to slow inflation. “They’re very resolute in fighting inflation and moving it lower,” said Kathy Bostjancic, chief U.S. economist at Oxford Economics. “They are concerned.”While central bankers were hesitant to react to rapid inflation last year, hoping it would prove “transitory” and fade quickly, those expectations have been dashed. Price increases remain rapid, and officials are watching warily for signs that they might turn more permanent.“All participants underscored the need to remain attentive to the risks of further upward pressure on inflation and longer-run inflation expectations,” the minutes showed.Now, officials are trying to cool off the economy as it is growing quickly and the job market is rapidly improving. Employers added 431,000 jobs in March, wages are climbing swiftly, and the unemployment rate is just about matching the 50-year low that prevailed before the pandemic.Central bankers are hoping that the strong job market will help them slow the economy without tipping it into an outright recession. That will be a challenge, given the Fed’s blunt policy tools, a reality that officials have acknowledged.At the same time, Fed officials are worried that if they do not respond vigorously to high inflation, consumers and businesses may come to expect persistently higher prices. That could perpetuate quick price increases and make wrestling them under control even more painful.“It is of paramount importance to get inflation down,” Lael Brainard, a Fed governor who is the nominee to be the central bank’s vice chair, said on Tuesday. “Accordingly, the committee will continue tightening monetary policy methodically through a series of interest rate increases and by starting to reduce the balance sheet at a rapid pace as soon as our May meeting.”Ms. Brainard’s statement that balance sheet shrinking could happen “rapidly” caught markets by surprise, sending stocks lower and rates on bonds higher. Investors also focused their attention on the minutes released on Wednesday.The notes from the March meeting provided more details about what the balance sheet process might look like. Fed officials are coalescing around a plan to slow their reinvestment of securities, the minutes showed, most likely capping the monthly shrinking at $60 billion for Treasury securities and $35 billion for mortgage-backed debt.That would be about twice the maximum pace the Fed set when it shrank its balance sheet between 2017 and 2019, confirming the signal policymakers have been giving in recent weeks that the plan could proceed much more quickly this time around.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

Global stocks and government bonds sold off on Wednesday as minutes from the latest Federal Reserve meeting highlighted officials’ willingness to aggressively raise interest rates to combat inflation.The US central bank raised its benchmark interest rate by 0.25 percentage points last month, but the minutes showed several participants would have preferred a sharper 0.5 percentage point increase were it not for the uncertainty caused by Russia’s invasion of Ukraine. “Many” of them said at least one 0.5 percentage point increase would be appropriate later in the year.The minutes also showed officials refining plans to start shedding assets from the Fed’s balance sheet at a much faster pace than its previous effort in 2017. Lael Brainard, a Fed governor, on Tuesday said the central bank could rapidly reduce its $9tn balance sheet from May. Markets initially dipped early on Wednesday in the wake of Brainard’s speech, and maintained most of their losses after the Fed minutes were released later in the day. The S&P 500 stock index closed 1 per cent lower, while the tech-dominated Nasdaq Composite lost 2.2 per cent. The declines followed what had already been a bruising day for investors in Europe and Asia. The Europe-wide Stoxx 600 index dropped 1.5 per cent, its worst daily decline in almost a month, while Hong Kong’s Hang Seng index dropped 1.9 per cent and Japan’s Topix fell 1.3 per cent. Government debt also came under pressure, with the yield on the benchmark 10-year US Treasury note adding 0.06 percentage points to a fresh three-year high of over 2.60 per cent. In Europe, the 10-year German Bund rose 0.03 percentage points to 0.6 per cent, while yields on 10-year Italian debt rose 0.04 percentage points to 2.3 per cent. Government bond yields, which underpin the rates banks charge companies and households for loans, rise as prices fall.

Investors are grappling with a difficult combination of rising inflation in the US and Europe, conflict in Ukraine and an escalating coronavirus outbreak in China. On Wednesday, the US and British governments both toughened sanctions against Russian banks in response to atrocities committed by Russian forces.“There are many things to worry about,” said Maarten Geerdink, head of European equities at NN Investment Partners, “But the one thing that matters the most is that we had a very accommodative Federal Reserve and we now have one that is on the tightening side.” Juliette Cohen, strategist at CPR Asset Management, said: “By removing these asset purchases and selling bonds that are on the balance sheet, it says we don’t need so much [monetary] accommodation due to the high level of inflation and reinforces the idea they will be hiking interest rates.“We expect a more rapid monetary tightening, not only in the US but also in the eurozone,” she added, after the annual pace of inflation in the currency bloc hit a record high of 7.5 per cent in March. More

The Federal Reserve is set to start shedding up to $95bn of assets a month from its swollen $9tn balance sheet as it steps up efforts to curb soaring inflation in the US. An account of the Federal Open Market Committee’s last meeting in March showed officials finalising a plan to reduce the central bank’s presence in US government bond markets, a process that will begin as early as next month. The Fed’s footprint in debt markets expanded significantly during the pandemic as it hoovered up trillions of dollars of Treasuries and agency mortgage-backed securities in an attempt to stave off an economic cataclysm. But faced with persistently high inflation, the Fed is now trying to tighten monetary policy, and reducing the size of its balance sheet is the main lever it can pull to cool down the US economy after raising interest rates. According to the minutes of the March meeting, officials broadly support the Fed increasing the pace at which it pares back its asset holdings over the coming months via a process known as “run-off”, whereby the central bank stops reinvesting proceeds from maturing securities. Members of the FOMC broadly agreed on monthly caps of about $60bn for Treasuries and $35bn for agency MBS, phased in over a period of three months or “modestly longer if market conditions warrant”. That amounts to asset reductions of just less than $1tn a year. “The Fed has clearly recognised at this point that they are behind the curve,” said Eric Winograd, an economist at AllianceBernstein.Winograd added: “When you’re behind the curve you have to hurry to catch up. They are now hurrying . . . They were increasing the size of the balance sheet four weeks ago. And now four weeks from now they are going to be reducing it.” Markets reacted modestly to the minutes, as the S&P 500 stock index declined about 1 per cent and the yield on the 10-year Treasury note rose by 0.06 percentage points to 2.61 per cent. Meanwhile, the minutes showed officials are open to more aggressive rate rises this year to battle rising prices following the Fed’s decision to raise the federal funds rate by a quarter of a percentage point last month — the first increase since 2018. Many participants said one or more half-point interest rate increases at forthcoming meetings could be appropriate if inflation stays high or intensified. If the Fed followed through with two such adjustments this year, as markets currently expect, the federal funds rate would reach a “neutral” level that neither speeds up or slows down growth by the end of the year. Officials estimate that rate to be between 2.3 per cent and 2.5 per cent.The Fed plans to top up its asset reductions by shedding holdings of shorter-dated Treasury bills in months when the amount of longer-dated bonds maturing is below the new caps.Officials also are considering outright sales of the Fed’s agency MBS holdings once the balance sheet shrinkage is “well under way”. The Fed has previously indicated that it would prefer to have only Treasuries in its portfolio. Jim Caron, a portfolio manager at Morgan Stanley, said the fact that outright sales of agency MBS sales are being considered “speaks volumes” about the scale of monetary tightening it needs to implement in order to curtail inflation. The minutes show central bankers want to shrink the balance sheet quickly, and much more swiftly than the previous attempt to shed assets in 2017 after the Fed’s holdings had ballooned due to bond-buying in the wake of the global financial crisis that started in 2008. Back then, the Fed capped the monthly reduction in its balance sheet at $50bn and took a year to reach that pace. Lael Brainard, a governor who is awaiting Senate confirmation to become the Fed’s next vice-chair, on Tuesday said a “rapid” reduction in the size of the balance sheet was justified given the degree to which inflation is overshooting the central bank’s 2 per cent target and the strength of the labour market.

Jay Powell, Fed chair, has suggested that the expected pace of balance sheet reduction this year is roughly equivalent to a one quarter-point interest rate increase.In the weeks since the meeting, at which a majority of officials signalled the policy rate should rise to 1.9 per cent by the end of 2022, policymakers have publicly backed an even more hawkish stance. Mary Daly, president of the San Francisco Fed, told the Financial Times on Friday that the case for a half-point rate increase at the May meeting had grown, echoing a number of her colleagues who have in recent weeks signalled support for a faster and more forceful tightening of monetary policy. More

Good evening,Two Financial Times reports from opposite sides of the world highlight the severe stresses on global food production from the shock of coronavirus followed by the war in Ukraine.In China, strict Covid lockdowns are exacerbating shortages of fertiliser, labour and seeds just ahead of the crucial spring planting season. Particularly badly affected are northeastern Jilin, Liaoning and Heilongjiang provinces, which together account for more than 20 per cent of the country’s grain production.In the UK, a new parliamentary report says the UK food industry may shrink permanently if the government fails to address labour shortages resulting from the double whammy of coronavirus and Brexit. These shortages are likely to lead to “wage rises, price increases, reduced competitiveness and, ultimately, food production being exported abroad and increased imports”, the report says.Farmers are under pressure right across Europe as the cost of animal feed, fertiliser and fuel soars, a situation made worse by the Ukraine crisis. The EU gets half its corn from Ukraine and a third of its fertiliser from Russia.“It’s the four Fs: feed, fertiliser, fuel and financing. The war in Ukraine has had a huge knock-on effect for farmers,” said one grain trader.Brussels is easing state aid rules to support EU farmers as well as allowing access to a €500mn crisis fund, but final approval needs to come from national governments and the European parliament, a process that could take weeks.Arab nations are badly affected too, particularly countries such as Lebanon, which gets 70 per cent of its wheat imports from Ukraine. Egypt, the world’s largest wheat importer, relies on Russia and Ukraine for more than 80 per cent of the wheat it buys on international markets.Fertiliser prices, which hit record levels last month, are an increasing worry. Russia is a key exporter of nitrogen, phosphate and potash fertilisers. The situation is also being made worse by a lack of competition in the US fertiliser industry.World Trade Organization chief Ngozi Okonjo-Iweala told the FT recently that governments risked repeating mistakes of earlier food crises by imposing export controls as commodity and energy prices spiralled. She urged governments with surplus stocks of products such as vegetable oils and grains to release them on world markets.The UN’s food price index has already risen by 24 per cent from a year ago and is set to rise further. This means higher grocery bills in richer countries that have already been hit by the highest inflation in decades. But in poorer countries, the FT editorial board notes, higher prices mean catastrophe. And given how badly the world has done in distributing vaccines equitably, the omens for how it will deal with a food crisis are not good.Nobel economist Amartya Sen once said that famines could not happen in a democracy because of the free flow of information and consequent public outrage, the FT notes. “But democracy is ever more under attack,” it concludes. “Putin is the latest aggressor. Unless he is stopped, hunger will follow.”Latest newsBusiness confidence in UK construction hits 17-month lowProportion of EU workers in UK hospitality falls to lowest level since 2019 Belgium blocks more than €196bn of transactions under Russia sanctions regimeFor up-to-the-minute news updates, visit our live blogNeed to know: the economyThe value of global trade fell 2.8 per cent between February and March as the Ukraine crisis hit container traffic, according to new data. As well as affecting Russia and Ukraine, the war has knocked the EU badly, reducing exports by 5.6 per cent and imports by 3.4 per cent in March. In the US, exports were down 3.4 per cent and imports down 0.6 per cent, while the impact on China was negligible.Latest for the UK and EuropeChief economics commentator Martin Wolf said it was time to curb imports of Russian gas, arguing that although the effect on Europe could be substantial it had been exaggerated. New estimates show turning down the thermostat 1C-2C in residential and commercial buildings across Europe could cut dependence on Russian gas by almost 10 per cent.Current sanctions have yet to dent the number of crude oil tankers leaving Russia, especially those heading for the key Indian market. Other options being discussed by EU ministers today include a ban on Russian coal imports. The UK is creating a new body to take over some responsibilities from the National Grid in overseeing the country’s energy system as it moves away from fossil fuels. The announcement comes ahead of tomorrow’s wider announcement on energy security.New FT columnist Stephen Bush says the way workers have reacted to trends in hospitality, such as the move away from cash tips, offers broader pointers for the development of politics.Global latestInflation in OECD countries reached a 30-year high of 7.7 per cent in February, even before the fresh hit to the global economy from the Ukraine crisis, with energy and food prices being the main culprits. The head of the Bank for International Settlements said higher inflation looked set to last, posing long-term problems for central banks and risking a “dangerous wage-price spiral”.Fed governor Lael Brainard said the bank would begin a “rapid” reduction of its balance sheet as soon as May and take “stronger” action to bring down inflation by raising interest rates. More hints should come in the minutes from the Fed’s last policy meeting, which are due to be published later today.The US services sector grew in March as the impact of the Omicron variant of coronavirus began to fade. US motorists, so far at least, seem to have taken the shock of $4 a gallon petrol in their stride, writes Justin Jacobs in our Energy Source newsletter.In contrast to the US, services sector activity in China shrank by the most since the start of the pandemic, as the country battled its worst outbreak of infections so far.More than 100mn children’s Covid doses will be included in the US pledge to provide 1.2bn jabs to poorer countries. The US Senate is close to reaching an agreement on an extra $10bn to help fight the pandemic.The World Bank cut its forecasts for economic growth in East Asia and the Pacific this year to 5 per cent, from 5.4 per cent, because of the shock caused to commodity markets by the war in Ukraine and the slowdown in China.Political chaos is growing in Sri Lanka after the country’s new finance minister quit after just 24 hours in post. A wave of protests over energy blackouts, soaring prices and shortages first hit the government of strongman president Gotabaya Rajapaksa last month. The country is facing a foreign exchange crisis and its currency has plunged to a record low.Need to know: businessThe FT revealed that new names on the EU sanctions list would include Herman Gref, the head of Russia’s biggest bank, and aluminium oligarch Oleg Deripaska.The UK will be the setting for Uber’s “superapp” push, which will add trains, coaches, flights and possibly hotels to its car booking service for a “seamless door-to-door experience”. The tech sector and its drive for innovation features strongly in our annual ranking of The Americas’ Fastest-Growing Companies.Shell paid no tax on its oil and gas production in the UK’s North Sea for the fourth consecutive year, even as fuel prices rocketed. The company instead received $121mn from the UK government as rebates for decommissioning old oil platforms.New car sales in the UK hit their lowest level since 1998 as the global semiconductor crisis dented output. The shortage, which is not expected to ease until next year, has also transformed the second-hand market, driving used car prices above new models. VW is moving away from its “people’s car” origins by scrapping dozens of models to focus on more profitable, premium vehicles.The chief executives of Pfizer, BioNTech and Moderna together received more than $100mn in pay during the pandemic, reflecting the huge commercial success of their mRNA Covid-19 vaccines. Pfizer’s stock price is up 60 per cent over the past 24 months, while the value of BioNTech and Moderna’s shares have tripled and increased by five times, respectively. In China, shares in a traditional medicine company have surged after Hong Kong promoted its Covid-19 treatments.The UK’s aspirations to become a “global hub” for cryptocurrencies get the once-over from FT Alphaville’s Jemima Kelly. See also our Big Read on Blockchain and financial markets: Will computers push out brokers?The World of WorkThe experience of “essential workers” during the pandemic showed that robots could not resolve problems like a shortage of truck drivers, writes columnist Sarah O’Connor. In that context, the victory for trade union organisers at Amazon’s warehouse in New York could mark a turning point in the US labour movement, she argues.In the new edition of our Working It podcast, O’Connor and Taylor Nicole Rogers discuss the Great Resignation and why millions are quitting their jobs, working less, or declaring themselves anti-work.Our Working It newsletter launched today and you can see the first one on our website, where you can also sign up to receive it every Wednesday.Our annual survey to find Britain’s healthiest workplace is open for nominations. Employees are invited to show what they are doing to improve the physical and mental condition of their staff and share their best practices for improved wellbeing. Get the latest worldwide picture with our vaccine trackerAnd finally . . . Fancy swapping those city pavements for hills and fields? Find out how FT journalist and avid urban runner Laura Noonan got on at a trail running retreat.Laura Noonan’s running group passes Greator Rocks on Dartmoor © Joe Kelly More

Fed Governor Lael Brainard and San Francisco Fed President Mary Daly spoke Tuesday, emphasizing the central bank’s commitment to fighting inflation through higher interest rates.
“It is of paramount importance to get inflation down,” Brainard said.
Raising rates “is what is necessary to ensure that again, [you] go to bed at night, you’re not worrying about whether prices will be higher, considerably higher tomorrow,” Daly added.

If there was any question about where the Federal Reserve stands on the key issue of the day — inflation — two important officials brought even more clarity on Tuesday.
Fed Governor Lael Brainard and San Francisco Fed President Mary Daly both issued comments that showed they envision higher rates and, in the former’s case, an aggressive drawdown of the assets the central bank is holding on its balance sheet.

Investors didn’t particularly like what they heard, sending major averages considerably lower on the day and the 10-year Treasury yield to a new 2022 high.

Lael Brainard, governor of the U.S. Federal Reserve, speaks during a Senate Banking, Housing, and Urban Affairs Committee confirmation hearing in Washington, D.C., U.S., on Thursday, Jan. 13, 2022.
Al Drago | Bloomberg | Getty Images

“It is of paramount importance to get inflation down,” Brainard said during a Minneapolis Fed webinar. The Federal Open Market Committee, which sets interest rates, “will continue tightening monetary policy methodically through a series of interest rate increases and by starting to reduce the balance sheet at a rapid pace as soon as our May meeting.”
The comments helped knock down a positive opening on Wall Street that ultimately turned into a nearly 1% loss for the Dow Jones Industrial Average. The more aggressive Fed chatter also comes as the 30-year fixed mortgage rate topped 5%, a key threshold, which could slow the housing market.

‘We’re not going to let this go forever’

Later in the day, Daly said inflation running at a 40-year high “is as harmful as not having a job.” Speaking to the Native American Finance Officers Association, she assured the group that the Fed is on the case.
“Most Americans, most people, most businesses, hopefully people in tribal nations, you all have confidence that we’re not going to let this go forever,” Daly said. “But if you don’t have that confidence, let me give it to you.”

She assured those in attendance several times that interest rates are heading higher, though she added that she doesn’t think it will cause a recession.
Raising rates “is what is necessary to ensure that again, [you] go to bed at night, you’re not worrying about whether prices will be higher, considerably higher tomorrow,” Daly added.
The Fed already has enacted its first rate hike of the year, a 0.25 percentage point move in March. Markets expect increases at each of the six remaining meetings this year, possibly totaling 2.5 percentage points.

Two policy ‘doves’

What made the two officials’ comments more striking is that they are considered to be in the camp of Fed “doves” — meaning that they usually favor low rates and less restrictive policies. That they both see a rather urgent need to tighten underscores how seriously the Fed is taking the threat.
Brainard’s voice carries a little extra heft in that she has been nominated to be vice chair of the FOMC, a position that makes her the top lieutenant for Chairman Jerome Powell.

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Brainard said she expects the Fed’s $9 trillion balance sheet to “shrink considerably more rapidly” than was the case during the last rundown in 2017-19. In that episode, the Fed allowed $50 billion a month in proceeds from maturing bonds to roll off while reinvesting the rest. Her comments opened the door to what many economists expect to be a monthly roll-off around $80 billion to $100 billion.
Reducing the balance sheet “will contribute to monetary policy tightening over and above the expected increases in the policy rate,” Brainard added.
“Currently, inflation is much too high and is subject to upside risks. The Committee is prepared to take stronger action if indicators of inflation and inflation expectations indicate that such action is warranted,” she added.
Daly echoed the idea that the balance sheet reduction could start in May, adding that the Fed’s commitment to fighting inflation “will mean interest rates go up.”
“But inflation, what people are paying day in and day out is on the minds of everyone, they go to bed at night thinking about it wake up in the morning thinking about rent, transportation, gas prices, food prices, so we as a Federal Reserve are on a path to raise the interest rates,” she said.

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