Senator Kennedy Grills Brainard on Inflation: “How Did You Get It So Wrong?” as Toomey Exposes Fed’s Race-Based Employment Framework

On 1/13/2022, Fed Vice Chair nominee Lael Brainard faced sharp questioning from Senators John Kennedy and Pat Toomey during her Senate Banking Committee confirmation hearing. Kennedy demanded to know how the Fed had gotten inflation predictions so wrong, telling Brainard her staff’s track record suggested “they also advised people to buy condos in Las Vegas in 2008.” Toomey exposed a Fed framework authored by Brainard that used monetary policy to target employment gaps between racial and ethnic groups — sacrificing price stability in the process.

”How Did You Get It So Wrong?”

Kennedy cut straight to the question voters wanted answered. “With respect to your predictions on inflation, how did you get it so wrong?” he asked.

Brainard began with a diplomatic response: “Nobody got the pandemic right. The pandemic is unprecedented.” Kennedy interrupted. “I’m asking you about inflation,” he said.

Brainard pivoted to supply chain issues. “The supply-demand imbalances that have been the biggest contributors to the very high inflation we’ve seen are directly attributable to supply chain issues, distortions in demand,” she said.

Kennedy was unconvinced. “I would agree that inflation is spreading. But I don’t see people going around coughing inflation on each other,” he said. “I understand supply chains matter, but so does the demand side. And so does too much money chasing too few goods. And I don’t think any fair-minded person thinks that inflation is solely the result of the pandemic.”

The “Disaggregated Basis” Framework

Senator Toomey used his opening statement to lay out a detailed critique of the Fed’s monetary policy framework, which Brainard had co-authored. Toomey revealed that the framework had effectively subordinated the Fed’s price stability mandate to pursue employment equity.

“Under this approach, the Fed looked beyond employment as a whole to consider whether employment was, quote, ‘broad-based and inclusive,’” Toomey said. “This meant the Fed would sacrifice stable prices to see if it could achieve higher employment gains in certain demographic groups.”

Toomey cited Brainard’s own words from the prior year: “The Fed should look at employment numbers on a ‘disaggregated basis’ and use monetary policy to narrow employment gaps between different ‘racial and ethnic groups.’”

“This framework risks keeping in place an inflation tax on all Americans while the Fed decides which subgroups of people should have faster job growth than others,” Toomey said. “One of the problems is that monetary policy can never equalize employment rates among different groups. In the end, the Fed would run the risk of failing on both fronts of its dual mandate, because you need stable prices in order to achieve a strong economy and maximum employment.”

Nine Consecutive Months Above Target

Toomey cited the stark numbers. “We’ve now had nine consecutive months where inflation has been more than two times the Fed’s 2% target,” he said. “Yesterday’s CPI release of 7% — the highest in 40 years — confirms that further.”

“Inflation is a tax that’s eroding Americans’ paychecks every day,” Toomey added. “Even though wages are growing, inflation is growing faster, and that’s causing workers to fall further and further behind.”

He noted that Brainard had “repeatedly insisted that inflation was transitory” throughout the prior year — a position the Fed itself had since abandoned.

Kennedy’s Las Vegas Analogy

Kennedy delivered one of the hearing’s most memorable lines when questioning Brainard about the quality of advice she was receiving from Fed staff. “I realize at the Federal Reserve that you have a big staff that advises you on inflation, and based on their track record, my guess is they also advised people to buy condos in Las Vegas in 2008,” Kennedy said. “But you don’t have to accept their advice.”

Brainard: Sole Dissenter 20 Times

Toomey also highlighted Brainard’s record as a regulatory outlier on the Fed board. “Governor Brainard was the sole dissenter over 20 times on regulatory matters — an unprecedented number at the Fed,” Toomey said. She had opposed capital and stress test reforms for smaller banks, arguing they would “weaken the safeguards at the core of the system.”

“Yet though the economy nearly collapsed at the start of the pandemic, the banking system emerged exceptionally well capitalized and served as a source of strength through the economy — demonstrating the sensibility of these reforms,” Toomey noted.

Key Takeaways

Kennedy asked Brainard how the Fed got inflation predictions “so wrong”; Brainard blamed the pandemic and supply chains while Kennedy argued “too much money chasing too few goods” was the real driver.
Toomey exposed a Fed framework co-authored by Brainard that used monetary policy to narrow employment gaps between racial and ethnic groups — sacrificing price stability in the process.
CPI had hit 7%, the highest in 40 years, after nine consecutive months above twice the Fed’s 2% target.
Kennedy compared Fed staff’s inflation forecasting to “advising people to buy condos in Las Vegas in 2008.”
Brainard had been the sole dissenter on Fed regulatory reforms over 20 times, opposing changes that proved effective when the banking system weathered the pandemic.

Transcript Highlights

The following is transcribed from the video audio (unverified — AI-generated from audio).

With respect to your predictions on inflation, how did you get it so wrong?
I don’t see people going around coughing inflation on each other. So does too much money chasing too few goods.
The Fed should look at employment numbers on a disaggregated basis and use monetary policy to narrow employment gaps between different racial and ethnic groups.
This framework risks keeping in place an inflation tax on all Americans while the Fed decides which subgroups of people should have faster job growth than others.
Based on their track record, my guess is they also advised people to buy condos in Las Vegas in 2008.
Yesterday’s CPI release of 7%, the highest in 40 years, confirms that inflation is not transitory.

Full transcript: 1111 words transcribed via Whisper AI.