The No. 2 official at the Federal Reserve vowed Wednesday that the central bank will continue to raise interest rates and keep them at high levels for some time to help bring down inflation.
“We are in this for as long as it takes to get inflation down,” Fed Vice Chairwoman Lael Brainard said, in a speech to a conference hosted by The Clearing House and Bank Policy Institute.
Since late March, the Fed has pushed its benchmark fed-funds rate to a range of 2.25%-2.5% “and the policy rate will need to rise further,” Brainard said.
Fed policy “will need to be restrictive for some time to provide confidence that inflation is moving down to target,” she added.
When addressing how long inflation might stay high, Brainard focused a great deal of attention on retail margins — the difference between the price retailers charge for a good and the price retailers are paid for that good.
She noted that retail margins “have risen significantly more than the average hourly wage that retailers pay workers to stock shelves and serve customers over the past year, suggesting that there may be scope for reductions.”
“With gross retail margins amounting to about 30% of sales, a reduction in currently elevated margins could make an important contribution to reduced inflation pressures for consumer goods,” she said.
In particular, Brainard noted that auto makers are enjoying an unusually large margin.
“With production now increasing, and interest sensitive demand cooling, there may soon be pressures to reduce vehicle margins and prices in order to move the higher volume of cars being produced off dealer lots,” she said.