No pause in September rate hike, says Fed VP

(Washington) US Federal Reserve (Fed) Vice Chairman Lael Brainard assessed on Thursday that there is no reason to consider a pause in interest rate hikes in September given that inflation is still far too high at this point in time.

Posted at 10:49 am
Updated at 11:52 am

“Right now it is very difficult to see any justification for a break (at the September meeting). We still have a long way to go to bring inflation back to our 2% target,” the number two in the powerful Federal Reserve told CNBC.

She insisted the priority is to “lower inflation” even if the economy “will slow down over time”, adding it is “too early” to say when demand will ease and the labor shortage will be over.

Following Jerome Powell, she states that interest rate decisions are made according to economic indicators. For September we will therefore have to wait for those released during the summer.

In the shorter term, two more half-point rate hikes during the June 14-15 and then July 26-27 meetings “appear to be a reasonable pace,” she said.

In the spring, the Fed began tightening monetary policy by raising interest rates twice, by a quarter of a point in March and then by half a point in early May.

“Of course we will do everything we can to reduce inflation. That’s our priority,” she said.

In another important move to normalize monetary policy, the Fed on Wednesday began trimming its balance sheet after buying securities during the COVID-19 pandemic to flood the market with liquidity and allow it to continue operating.

“I am confident that the tools that we have are starting to have the desired effect in terms of slowing demand,” said the Fed’s vice president.

Cleveland Fed Chair Loretta Mester stressed Thursday that September’s rate hike will depend on inflation: If inflation slows significantly, “the pace of rate hikes could also slow,” but if not, “a faster pace could.” of rate hikes may be needed”.

“The risk of recession has increased, but with demand dynamics and labor needs strong, […] a sharp slowdown can be avoided,” estimated this voting member in 2022 the decision-making body of the Fed’s Monetary Committee.

Inflation slowed somewhat in April after hitting a 40-year high in March. Still, it remains very high at 6.3% over a year behind the Fed’s favorite PCE index and 8.3% after the CPI index, on which bonds in particular are indexed.

Lael Brainard, Fed Governor since 2014, was elected vice chairman by Joe Biden and took office on May 23 for a four-year term after being confirmed in that position by the Senate.

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