Lael Brainard, the Federal Reserve’s vice chair, suggested on Thursday that the central bank might make one other large rate increase into September and threw cold water on the concept policymakers might pause rate moves after the summer — signaling as a substitute that they’re intently 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 might be twice the dimensions of the Fed’s typical ones, seemed “reasonable.” She doesn’t know where the economy will probably be in September, she said, but explained that if inflation remained rapid, one other big move “might well be appropriate.” If it slows, then a smaller pace of increase might make sense.
She added, nonetheless, that it was “hard to see the case for a pause” at a time when the Fed had “a variety of work to do” to get inflation all the way down to its goal, which is 2 percent on average over time. Prices picked up by 6.3 percent on a headline basis and 4.9 percent on a core basis over the 12 months through April.
Fed officials are fighting the fastest rate of inflation because the Nineteen Eighties by lifting borrowing costs, which slows down consumer and business demand, helping to bring the economy back into balance. Central bankers began to shrink their balance sheet of bond holdings this week and have already lifted their major policy rate of interest by 0.75 percentage points since March, efforts which might be already making mortgages and other loans pricier.
“We do expect to see some cooling of a really, very strong economy over time,” Ms. Brainard said, explaining that the Fed is on the lookout for moderation and “higher balance” within the labor market.
Ms. Brainard said she was on the lookout for “a string of decelerating inflation data” to feel more confident that inflation would get back no a more sustainable path.
The Fed is working against a fraught backdrop. Ms. Brainard said there was a “fair amount of uncertainty” concerning the economy, citing Russia’s war in Ukraine and lockdowns in China as aspects clouding the outlook.
Economists have warned that the Fed could struggle to decelerate the economy without tipping it into an outright recession, especially because it withdraws support rapidly and in tandem with other central banks around the globe. But Ms. Brainard said there was a path where demand could cool and inflation could come down while the labor market remained strong.
“We’re ranging from a position of strength — the economy has a variety of momentum,” she said, also citing solid business and household balance sheets.