Federal Reserve Vice Chair Lael BrainardAccording to Thursday’s statement, it seems unlikely that the central banks will soon be easing off of its current rate-hiking cycle.
Brainard stated that although she highlighted the data dependence of Fed policymakers, the likelihood is that increases continue until inflation is controlled.
She told CNBC that “Right now it’s very difficult to see the case in favor of a pause.” Sara EisenLive “Squawk on the StreetThis was her first interview since she was elected vice chair. There is still much work ahead to reduce inflation to 2%.
A few officials have suggested the idea of two additional 50-basis point rate hikes in summer and then stepping back in September. This was most prominently proposed by Raphael Bostic, Atlanta Fed President. Although minutes from the May Federal Open Market Committee meeting suggested some support for the idea that we evaluate the situation in the fall and made no commitments, they did not include any specifics.
Recent days have seen policymakers like Governor Christopher Waller and Mary Daly from San Francisco Fed, respectively. have stressed the importanceto aggressively utilize the central banks policy tools in order to slow down the inflation rate, currently at the fastest pace since 1980.
Brainard stated, “We are certain to do whatever is necessary to bring down inflation.” This is our No. This is our number one challenge. Starting from a strong position. There is a lot going on in the economy.
However, recent economic data has been mixed.
ADP announced Thursday that May saw a decrease of 128,000 private payrolls, which is just 12% more than the pace for jobs recovery since May 2020. In the first quarter, labor productivity contracted at its fastest rate since 1947. Atlanta Fed is tracking an anemic 1.3% growth rate2.5% GDP contraction in second quarter
Brainard stated, however that the main priority is to bring down inflation. This shouldn’t be a significant problem for an economy with strong balance sheets.
Two 50 basis points increases are already being priced in by markets at their next meeting, Brainard calling it “a reasonable path.” Beyond that though, she said, noting upside and downside risk to growth.
Loretta Mester, President of the Cleveland Fed, stated that she expects to see consecutive 50-basis point increases. Although she acknowledged that the Fed will then be able to evaluate progress in reducing inflation, Mester said she believes additional rate rises are likely.
Mester spoke to the Philadelphia Council for Business Economics. “In my opinion, with inflation so high,” Mester explained. We cannot call that today, because it depends on whether demand is moderated and how the economy performs on the supply side.
Along with the rate hikes, the Fed began reducing asset holdings in its $9 trillion balance sheet. This will allow a cap on the proceeds of maturing bonds that can be rolled off every month, and then reinvest them.
Brainard predicted that by September the reduction in the balance sheet will amount to $95 Billion per month. Brainard also stated that this will lead to another two-three rate increases once the process is complete.
