Fed Vice-Chairman Lael Brainard said Thursday that the central bank could raise rates even more significantly in September and policymakers could suspend rate hikes after the summer. Suggested that cold water could be thrown. Inflation is too high.
Brainard said in an interview with CNBC that market expectations for a half-percentage increase in June and July seem “reasonable” to be twice as high as typical of the Fed. She said she doesn’t know where the economy will be in September, but if inflation remains rapid, another big move “may be appropriate.” If it slows down, it may make sense to increase your pace a bit.
But when the Fed “has a lot to do” to bring inflation down to its target (on average 2% of the time), she added, “it’s hard to see a case of a stop sign.” Prices rose 6.3% on a headline basis and 4.9% on a core basis over the year to April.
The Federal Reserve has been fighting the fastest inflation rates since the 1980s by slowing consumer and corporate demand and raising borrowing costs to help rebalance the economy. The central bank began shrinking its bond holdings balance sheet this week, raising key policy rates by 0.75 percentage points already since March. This is an effort that has already raised the price of mortgages and other loans.
“We expect a very strong economy to cool to some extent over time,” Brainard said, explaining that the Fed is seeking easing the labor market and a “better balance.”
Brainard said he was looking for “a series of slowing inflation data” to be confident that inflation could not regain a more sustainable path.
The Federal Reserve is running against an unstable background. Mr Brainard said there was “significant uncertainty” about the economy, citing Russia’s war in Ukraine and the blockade in China as factors that clouded the outlook.
Economists have warned that the Fed may struggle to slow the economy without putting it into a complete recession. But while the labor market remains strong, Brenard said demand could cool and inflation could fall.
“We are starting from a strong position. The economy has a lot of momentum,” she said, citing a solid business-household balance sheet.