CHICAGO- TheUS Federal Reserve is clear on the need for restrictive monetary policy to lower inflation, Fed Vice Chair Lael Brainard said on Monday, but the path and pace of rate increases will remain “data-dependent” as the central bank monitors the economy and the evolution of domestic and global risks.
In prepared remarks and responses to questions, Brainard said Fed rate hikes to date were beginning to slow the economy – perhaps even more than expected – and that the full brunt of tighter policy would not even be felt for months to come.
Additionally, the “concurrent” rate hikes by central banks abroad as they all fight local outbreaks of inflation was creating an impact “larger than the sum of its parts” that posed potential risks US officials need to monitor, Brainard said.
“There is clarity that monetary policy will be restrictive for some time, until there is confidence inflation comes down. … The (Federal Open Market) Committee has said policy rates will increase further,” Brainard said. But “we also will be learning as we go and that assessment will reflect incoming data and also risks domestically and globally … The actual policy path will be data-dependent.”
She referred to projections of policymakers about the path of interest rates, which as of September showed the median officials anticipating the federal funds rate rising to around 4.6 percent next year, as “very helpful at a point in time,” but also based on expectations about how the economy will evolve.
“Things can change,” she said.
Brainard gave no sense the Fed was weakening in its resolve to quell inflation that is currently triple the central bank’s 2 percent target, or that the Fed will not proceed with planned rate increases including a possible three-quarter point hike at its Nov. 1-2 session.
In an appearance at a National Association for Business Economics conference, she restated that it would be risky for the Fed to back off “prematurely” in its rate tightening, and that it would “take some time” for inflation to fall.
However she spoke at a time of mounting external concern that the speed of Fed rate increases was stressing the global economy and had outrun the central bank’s ability to monitor the impact it was having.
In a poll of 45 professional forecasters conducted by the NABE, a little over half said that “the greatest downside risk to the US economic outlook is too much monetary tightness.”
