It may soon be time for the Federal Reserve to ease its steep rate hikes, according to the central bank’s second-in-command, Vice Chairman Lael Brainard.
“I think it will probably be appropriate to maintain a slower rate of increase soon,” Brainard said Monday at an event hosted by Bloomberg News in Washington, DC.
The Fed has taken the unprecedented step of delivering massive rate hikes in a decades-long struggle to tame inflation. In its last four meetings, the central bank agreed to raise rates by three quarters of a percent, raising its benchmark lending rate by 4 percentage points in nine months.
These efforts are having an impact on the economy, and while there is additional work to be done to bring inflation down to the Fed’s preferred 2% target, it may be appropriate to take a “deliberate” approach and see how monetary tightening is progressing. through the economy, Brainard said.
“You can see it in financial terms in inflation expectations, which are pretty well anchored, in interest rate sensitive sectors,” he said, adding that the data lags mean that. some time to do cumulative tightening take effect
“It makes sense to move at a deliberate and data-driven pace as we continue to ensure that there is scope to lower inflation over time,” he added.
The Fed is closely monitoring the results of its efforts, Brainard said. Although the main objective of tighter monetary policy is to better align demand with supply, it is expected that it may ultimately lead to higher unemployment.
Due to the “very unusual labor market” caused by the global pandemic, the proportion of openings for unemployed workers remains quite high. The Fed is hopeful that some demand can be filled for those large jobs, instead of just layoffs, he said.
“It’s likely to be a combination of both,” he said. “We will be watching the labor market and inflation very carefully as we go forward.”
Brainard’s remarks came after Fed Governor Christopher Waller signaled on a day that future rate hikes could come in increments of 50 basis points – half a percentage point – starting at the Fed’s December meeting.
Waller, speaking at a conference in Sydney, said there was evidence that inflation was moderating, but urged caution about overreacting to one data point. according to reports.
Last week, the Bureau of Labor Statistics reported that annual inflation fell to 7.7% in October, the lowest reading since January. The investors were awesome finally getting some good news on inflation, sending stocks to their best day since 2020.
But inflation will have to continue to decline “before we start thinking about taking our foot off the brakes here,” Waller said, according to Bloomberg.
“We have a long way to go to lower inflation,” he said. “They’re going to keep raising rates and they’re going to stay high for a while until we see this inflation getting closer to our target.”