According to Fed’s Brainard, Rate Increases will Eventually slow the economy.

Read Time:3 Minute, 18 Second

Rates must remain higher, according to the No. 2 official of the central bank, to prevent inflation from accelerating.

It will take time for the central bank’s swift rate increases this year to lower inflation, which has risen to 40-year highs, according to a senior Federal Reserve official.

In remarks set to be delivered on Monday, Fed Vice Chairwoman Lael Brainard stated that “monetary policy would be tight for some time to guarantee that inflation gets back” to the government’s 2% objective. She added that the cumulative impact of tighter monetary policy would take time to spread across the economy and reduce inflation.

Since March, the Fed has increased rates by three percentage points, the fastest rate increase pace since the early 1980s. With its most recent hike last month, its benchmark rate is now between 3% and 3.25%, and policymakers have said they are ready to boost rates to about 4.25% during their final two meetings this year.

Ms. Brainard didn’t go into much detail on the rate forecast in her prepared remarks before the National Association for Business Economics meeting in Chicago, despite being a member of the inner circle of policy-shaping discussions with Fed Chairman Jerome Powell.

The consequences of quick rate hikes by central banks across the world, which would put downward pressure on inflation, were among the reasons given in her speech as to why the economy was expected to decline over the upcoming year.

Several interest rate increases have affected the U.S. economy, and more are anticipated in the future. WSJ breaks down the figures impacting Americans’ finances this year and in the future.


According to Ms. Brainard, “the slowdown in demand owing to monetary-policy tightening is only partly realized thus far.” According to her, overall U.S. financial conditions have tightened quickly in recent months, resulting in an increase in borrowing prices and a decrease in the value of equities and other assets. These changes may reduce hiring, expenditure, and investment.

According to current statistics on consumer savings, consumers may have less financial cushion than previously thought, according to Ms. Brainard, which might keep spending low in the months to come.

Moving forward slowly and data-dependently will allow us to understand how economic activity, employment, and inflation are reacting to cumulative tightening to inform our judgments of the course of the policy rate, she added.

To combat the fastest inflation in four decades, the Fed has increased interest rates five times this year, and other central banks worldwide have followed it in tightening monetary policy. Economists have cautioned of a more significant chance of a worldwide recession as so many countries hike rates swiftly and markets have grown more susceptible to unrest.

According to a prepared statement, Ms. Brainard stated on Monday that “the cumulative effect of contemporaneous global tightening is more than the sum of its parts,” emphasizing that the Fed considers so-called spillover effects when determining rates.

She added that we are also acutely aware of the potential cross-border interactions that might occur between financial vulnerabilities and unanticipated changes in interest rates, currency rates, and external imbalances.

“Fragile liquidity in main financial markets” might magnify the consequences if investors become alarmed, according to Ms. Brainard. Last month, the Bank of England was forced to step in and stabilize the British government bond market.

Additionally, Ms. Brainard pointed out that recent revisions to American savings data indicate that consumers may not have as much money to spend shortly as initially anticipated.

Despite her concerns about the economy’s direction, Ms. Brainard also emphasized that the Fed’s chronic issue with inflation continues.

https://www.federalreserve.gov/newsevents/speeches.htm

Happy
Happy
0 %
Sad
Sad
0 %
Excited
Excited
0 %
Sleepy
Sleepy
0 %
Angry
Angry
0 %
Surprise
Surprise
0 %
Previous post The Three Largest holders of Treasury securities—the Federal Reserve, other Governments, and Commercial Banks—Are all Pulling Out at Once.
GM Energy Technology Next post GM to Incorporate its Battery Work into the New Energy Business Division.