Fed’s Brainard sees balance sheet reduction soon and ‘at a rapid pace’

Lael Brainard, Federal Reserve governor and President Bidens nominee to be the new vice-chair of the Federal Reserve, speaks during her nomination hearing with the Senate Banking Committee on Capitol Hill January 13, 2022 in Washington, DC.

Federal Reserve Governor Lael Brainard said Tuesday that the central bank needs to act quickly and aggressively to drive down inflation.

In a speech for a Minneapolis Fed discussion, Brainard said that policy tightening will include a rapid reduction in the balance sheet and a steady pace of interest rate increases. Rate moves could be higher than 0.25 percentage point moves according to her comments.

She said in prepared remarks that inflation is too high and is subject to upside risks.

The March meeting was the first in more than three years where the Fed decided to raise the interest rate.

The Fed is expected to lay out a plan at its May meeting for running down some of the $9 trillion in assets on its balance sheet. That process will be swift according to Brainard.

She said that the Committee will tighten monetary policy through a series of interest rate increases and by starting to reduce the balance sheet at a rapid pace.

The Fed allowed $50 billion in proceeds to roll off each month from maturing bonds. The pace could double this time.

Inflation is running at its fastest pace in 40 years and is well above the Fed's 2% target. The market expects the rate to go up 2.5 percentage points at the remaining six meetings.