Fed Vice Chairman Says Another Big Interest Rate Hike Could Happen in September

Lael Brainard, vice chairman of the Federal Reserve, suggested on Thursday that the central bank could make another big rate hike in September and threw cold water on the idea that policymakers could suspend interest rate moves. rates after the summer – signaling instead that they are intensely focused on controlling too-high inflation.

Ms. Brainard, in an interview on CNBC, said market expectations for half-percentage-point increases in June and July, increases that would be twice as large as the Fed’s typical, seemed “reasonable. “. She doesn’t know where the economy will be in September, she said, but explained that if inflation remains rapid, another big move “may well be appropriate.” If it slows down, a lower rate of increase might make sense.

She added, however, that it was “hard to see the case for a pause” at a time when the Fed had “a lot of work to do” to bring inflation back to its target of 2% in average over time. Prices rose 6.3% on an aggregate basis and 4.9% on a base basis in the year to April.

Fed officials are battling the fastest rate of inflation since the 1980s by raising borrowing costs, which slows consumer and business demand, helping restore economic balance. Central bankers began trimming their bond balance sheets this week and have already raised their key policy 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 moderation and “better balance” in the labor market.

Ms Brainard said she was looking for “a decelerating inflation data set” to feel more confident that inflation would not return to a more sustainable path.

The Fed is evolving in a difficult context. Ms Brainard said there was a “good dose of uncertainty” about the economy, citing Russia’s war in Ukraine and lockdowns in China as factors clouding the outlook.

Economists have warned that the Fed could struggle to slow the economy without tipping it into an outright recession, especially as it withdraws support quickly and in tandem with other central banks around the world. . But Ms Brainard said there was a path where demand could cool and inflation could drop as the labor market remained strong.

“We are starting from a position of strength – the economy has a lot of momentum,” she said, also citing strong balance sheets for businesses and households.

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