Federal Reserve Vice Chair Lael Brainard during a Bloomberg event in Washington, said it makes sense for the Fed to move to a “deliberate, data dependent pace” of rate hikes. Over the weekend Fed Governor Christopher Waller’s said policymakers had “a ways to go” before ending interest-rate hikes. The markets got a small from what she said. The Fed has been in the midst of its most aggressive tightening campaign since the 1980s. Last Thursday a softening in US CPI inflation unleashed an outsized rally in risk assets, a surge in bonds and sell off in the US dollar.
On inflation Brainard said “There are likely to be lags and it’s going to take some time for that cumulative tightening to flow through,” “And so it makes sense to move to a more deliberate and a more data-dependent pace as we continue to make sure that there’s restraint that will bring inflation down over time.”
The market has priced in a 50bps hike at their Dec. 13-14 meeting following a signal from Chair Jerome Powell on Nov. 2 that such a downshift was possible, and the subsequent CPI report last week which showed increases in US consumer prices may be starting to moderate.
Highlights from Brainard Speech
- Brainard added to the narrative “The most recent CPI inflation print suggests that maybe the core PCE measure that we really focus on might be also showing a little bit of a reduction,” “That would be welcome.”
- “By moving at a more deliberate pace we’ll actually be able to see how that cumulative tightening is playing out,” Brainard said. “Exactly what that path looks like I think is really hard to say right now.”
- “It will probably be appropriate soon to move to a slower pace of increases, but I think what’s really important to emphasize, we’ve done a lot, but we have additional work to do.”
It is worth looking back to Brainard’s speech at the Clearing House and Bank Policy Institute 2022 Annual Conference, New York, New York on Sept 7, just a few months ago.:
- At some point in tightening cycle risks will become more two-sided
- We are in this for as long as it takes to get inflation down
- Monetary policy will need to be restrictive for some time
- Fed’s policy rate will need to rise further
- Need ‘several months of low monthly inflation readings’ to be confident inflation is moving down to 2%
- Our resolve is firm, goals clear and tools ‘up to the task’
- Jobs market continues to exhibit considerable strength, which is hard to reconcile with more downbeat tone of activity
- A variety of indicators are showing signs of improvement on delivery times and supplies of some goods
- Notes that food inflation up 8.5% year-to-date and continuing to rise
- How long it takes to move inflation back down to 2 percent will depend on a combination of continued easing in supply constraints, slower demand growth, and lower markups, against the backdrop of anchored expectations
- A reduction in currently elevated margins could make an important contribution to reduced inflation pressures in consumer goods
With a series of inflationary supply shocks, it is especially important to guard against the risk that households and businesses could start to expect inflation to remain above 2 percent in the longer run, which would make it much more challenging to bring inflation back down to our target. The Federal Reserve is taking action to keep inflation expectations anchored and bring inflation back to 2 percent over time.
Vice Chair Lael Brainard
Core inflation—inflation excluding volatile food and energy prices—also moderated in July. Core goods PCE inflation decelerated to 0.1 percent month-over-month in July after averaging 0.5 percent in May and June.6 While the moderation in monthly inflation is welcome, it will be necessary to see several months of low monthly inflation readings to be confident that inflation is moving back down to 2 percent.
The deceleration in economic activity thus far this year has coincided with only a slight easing in job openings, on net, since their peak in March. The current high level of job openings relative to job seekers remains close to the largest in postwar history, consistent with a tight labor market (figure 5). Businesses that experienced unprecedented challenges restoring or expanding their workforces following the pandemic may be more inclined to make greater efforts to retain their employees than they normally would when facing a slowdown in economic activity
Source: Federal Reserve, Bloomberg
From The TradersCommunity News Desk