Fed’s Brainard believes that interest rates will remain high despite recent inflation falls
Lael Brainard, Vice Chair of the Federal Reserve, stated Thursday that interest rates must remain high despite recent inflation declines.
This message was in line with other Fed officials’ comments this month. They see more rate hikes ahead of them and expect to keep borrowing prices high until they have enough evidence of inflation subsiding.
Brainard spoke in prepared remarks to a Chicago speech, “Even with recent moderation, inflation remains high.”
INFLATION EASES IN DECEMBER TO 6.5% BUT REMAINS STUBBORNLY HIGH
The Fed raised its benchmark interest rate In the most aggressive tightening campaign in 80 years, the range was 4.25% to 4.5%. Officials slowed rate increases to 50 basis points at their December meeting, after four consecutive 75-basis point hikes.
The benchmark interest rates are typically moved by central banks in intervals of 25-basis points.
This downshift will “enable us to assess more data, as we move the rate closer to a sufficient restrictive level, taking account of the risks around dual-mandate goal goals,” she stated.
Markets expect the Federal Open Market Committee to meet next on January 31-Feb. 1. Markets widely anticipate that policymakers will further downshift and approve a quarter point hike. CME Group data.
DEMOCRATS SLAM ‘DANGEROUS’ FED RATE HIKES, WARNING OF WIDESPREAD JOB LOSSES
Brainard did not indicate whether she would prefer a half-point to a quarter point hike, though she did not push back against market expectations of a smaller increase in the next month.
The Fed’s No. In her speech, the Fed’s No. 2 official provided a more positive outlook for inflation and economy. She cited several recent reports which suggested that higher interest rates are effective. inflation is beginning to moderate. According to the Labor Department, December saw a 0.1% drop in the consumer price index. This was the first monthly decline since 2020.
There are signs that the labor market is slowing down, with December’s only 223,000 job growth, the lowest in two years. Brainard stated that once-hot wages are starting to slow down, which decreases the likelihood of “a 1970s-style wage price spiral”.
“For these reasons it remains possible that continued moderation of aggregate demand could facilitate continued ease in the labor market, reduction in inflation, and avoid a significant loss in employment,” she said.
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Fed officials They have stated that they expect unemployment will rise as a result higher rates. This could cause consumers and businesses to cut back on spending. The central bank updated its projections for December, showing that they expect unemployment to rise by 4.5% by next year. This is an increase in the current rate of 3.5%.
This could lead to more than 1,000,000 Americans losing their jobs between now 2023.