Fed vice president says another big interest rate hike could come in September

Lael Brainard, vice president of the Federal Reserve, suggested that the central bank could make another big rate hike in September and threw cold water on the idea that politicians could suspend rate movements after the summer, signaling instead that they are also intensely focused on control. high inflation.

Ms. Brainard, in an interview with CNBC, said that market expectations for hikes of half a percentage point in June and July, which are double those typical of the Fed, seem “reasonable”. She doesn’t know where the economy will be in September, she said, but she explained that if inflation remained rapid, another big move “could very well be appropriate”. If it slows down, a smaller rate of increase may make sense.

He added, however, that it was “difficult to see the case for a pause” at a time when the Fed has “a lot of work to do” to bring inflation to its target, which averages 2% inflation over time. . . The prices have increased 6.3% on a principal basis and 4.9% on a principal basis in the year to April.

Fed officials are fighting the fastest inflation rate since the 1980s by raising funding costs, which slows consumer and business demand, helping to bring the economy back into balance. Central bankers started reducing their bond holdings balance sheet this week and have already raised them principal reference interest rate by 0.75 percentage points since March, efforts that are already making mortgages and other loans more expensive.

“We expect to see some cooling of a very, very strong economy over time,” Ms. Brainard said, explaining that the Fed is seeking restraint and “better balance” in the labor market.

Ms. Brainard said she was looking for “a series of data on decelerating inflation” to feel more confident that inflation will not return to a more sustainable path.

The Fed is operating in a difficult environment. Ms. Brainard said there was “a fair amount of uncertainty” about the economy, citing Russia’s war in Ukraine and the blockade in China as clouding prospects.

Economists have warned that the Fed could struggle to slow the economy without causing it to fall into a full-fledged recession, especially as it withdraws support quickly and in tandem with other central banks around the world. But Ms. Brainard said there is a path where demand could cool and inflation could drop while the job market remains strong.

“We are starting from a position of strength: the economy has a lot of momentum,” he said, also citing solid economic and family balance sheets.