The US central bank vice president said the Federal Reserve still had “additional work to do” in its fight against inflation, even as she backed slowing the pace of future interest rate increases.
Speaking Monday, Lyle Brainard said the Fed should “soon” end its string of massive interest rate hikes, having raised rates by 0.75 percentage point at each of its four previous meetings.
By moving at a “calculated” pace, she said the Fed would be in a better position to assess incoming economic data and adjust the path of interest rate hikes as needed.
However, Brainard stressed that the slowing pace of interest rate increases did not mean the Fed was backing away from its efforts to address price pressures, which are among the most intense in decades.
“We’ve done a lot, but we have more work to do in terms of raising interest rates and maintaining restraint to bring inflation down to 2 percent over time,” she said, adding that while better-than-expected inflation data for October was “reassuring It was only “preliminary”.
Brainard, one of the most dovish members of the FOMC, has long emphasized the need for the Fed to take into account not only the “cumulative” tightening already delivered, but also the lagging effects on consumer demand, the labor market and other metrics when Think about how to aggressively raise interest rates.
On Monday, I reiterated the importance of remaining “vigilant” regarding potential global ramifications from the Fed and other central banks’ historically aggressive efforts to root out very high inflation.
“We are well aware that in a world where many central banks in large jurisdictions are being tightened at the same time, this is greater than the sum of its parts,” she said.
Brainard’s views have become widely accepted across the Federal Reserve, with Chairman Jay Powell stressing at its latest policy meeting earlier this month that a cut in the pace of rate hikes could come as soon as December.
However, Powell added that stubbornly high inflation and a resilient labor market likely mean that the Fed may eventually need to push interest rates higher, and keep them “tied” for longer, pointing to more economic pain than anticipated in the start.
In a recent interview with the Financial Times, Mary Daly, president of the Federal Reserve Bank of San Francisco, said the so-called “final interest rate” “is likely to be at least 5 percent.” Federal Reserve Governor Christopher Waller said Monday that a lot will depend on the path of inflation, though he added that the Fed still has “a ways to go” before it pauses interest rate hikes.
Commenting on the risks of a recession in the next 12 months, Brainard acknowledged on Monday that it was “very difficult” to make a forecast, but emphasized that a “very unusual” job market – characterized by near-record job creation and widespread worker shortages – could mean fewer jobs lost. And lower unemployment than previous monetary tightening campaigns.
When asked about the wild volatility in the cryptocurrency markets in the wake of the collapse of FTX, one of the largest players in the industry, the vice president said he was “really concerned to see that retail investors are really hurting from these losses” and called for “strong regulatory barriers” similar to those governing The most traditional pillars of finance.
“Despite a lot of hype. . . On how decentralized these markets are and how innovative and different they are,” she said. “They turn out to be very focused and very interconnected and you see a domino effect [of] From one platform or one company it spreads to another.”