“I am very concerned about the high level of inflation,” said Lael Brainard, the future vice-president of the American central bank (Fed), during a hearing before the Senate Banking Committee on Thursday.

"We hear from working families across the country talking about inflation... We have a powerful tool and we're going to use it," she said.

Faced with prices that have climbed 7% in 2021, their biggest rise in nearly 40 years, the powerful Federal Reserve is therefore on a war footing.

Its weapon: key rates, which it is preparing to raise earlier and stronger than expected, probably as early as March.

The objective: to increase the cost of credit, and, in turn, to reduce consumption.

"We have a tool that acts on demand, which is the key rate," said the future number 2 of the Fed, who, if her appointment is confirmed by the Senate, will take office in February.

Supply and demand

But the exercise is delicate, because it is necessary to avoid hitting too hard, which would weigh on employment.

Ms. Brainard said she is confident that the actions the Fed will take "will reduce inflation while continuing to allow the labor market to return to full strength over time. So we will return to full employment while bringing the inflation at 2%".

Inflation has also become a major concern for business leaders, who are worried that it will persist beyond 2022, according to a survey published Thursday by the Conference Board economic research center.

Fed Vice-Chairwoman Lael Brainard at the White House on November 22, 2021 JIM WATSON AFP

A tight labor market, demand that remains strong and an uncertain Covid trajectory could however contribute to pushing prices up further, warned Thursday Jason Furman, former economic adviser to President Barack Obama and professor at Harvard, in a column published by the Wall Street Journal.

“I expect inflation to remain high this year, maybe even higher than in 2021,” he warned.

But economists remain divided: "I continue to believe that (...) the undesirable surge in inflation in 2021 (...) will ultimately prove to be largely transitory with an appropriate monetary policy", thus commented the current Fed Vice Chairman Richard Clarida in a research paper released Thursday.

"Bidenflation"

Although the central bank can act on consumer demand, it does not have any leverage on the other origin of the price increase: supply, i.e. disturbances in the global supply chain.

They did not resolve as many analysts predicted, and may even be increased by the Omicron variant.

In the United States, this phenomenon is reinforced by labor shortages which are slowing down production and deliveries, further limiting supply.

Opposite, demand is very strong, thanks to government financial aid in the face of the pandemic, but also to the fortunes of property owners and holders of equity portfolios which have grown, with the rise in the prices of these assets.

This soaring cost of living is one of the many thorns in Joe Biden's side, and the Republican opposition does not fail to attribute the blame to him, now nicknaming the rise in prices, "Bidenflation".

A scoop in New York on January 12, 2022 TIMOTHY A. CLARY AFP

To act on the offer, the White House must announce new measures to reduce congestion in American ports.

A brief brightening, however, came from wholesale prices, which rose 0.2% in December, much slower than in previous months, according to the PPI index, a measure of inflation on the manufacturers' side and sellers, released Thursday by the Labor Department.

© 2022 AFP