US Federal Reserve's Lael Brainard says pause in rate hikes unlikely

Brainard stressed the central bank's priority was to bring inflation down, even if the US economy will slow as a result, but said it was too early to determine when demand will ease and when the labor supply will increase

By AFP

Published: Jun 3, 2022 11:53:01 AM IST

Updated: Jun 3, 2022 12:11:04 PM IST

Lael Brainard, vice chair of the US Federal Reserve. (Credits: Drew Angerer / GETTY IMAGES NORTH AMERICA / Getty Images via AFP)

The vice chair of the US Federal Reserve said Thursday there is currently no reason to consider pausing rate hikes in September in the face of soaring inflation.

"Right now, it's very hard to see the case for a pause" during the Fed's meeting in September, Lael Brainard said in an interview with CNBC. "We've still got a lot of work to do to get inflation down to our two percent target."

She stressed the central bank's priority was to bring inflation down, even if the US economy will slow as a result, but said it was too early to determine when demand will ease and when the labor supply will increase.

Following Fed chair Jerome Powell, Brainard noted that rate hikes are decided based on economic data. Any decisions for September will have to wait until data for the summer months has been published.

In the short-term, Brainard said, two additional half-point rate hikes at the meetings on June 14-15 and July 26-27 seem to be "a reasonable kind of path."

The Fed has increased the benchmark interest rate twice since March by a total of three-quarters of a percentage point, and has previously signaled multiple half-point hikes are likely as it tries to tamp down the highest inflation in more than four decades without derailing the economic expansion.

"We're certainly going to do what is necessary to bring inflation back down," Brainard said.

"That's our number one challenge."

In another major step back toward normal practices, the Fed has also begun to trim its balance sheet, after launching a program in the early days of Covid-19 of purchasing bonds and mortgage-backed securities to stabilize financial markets.

The Fed stopped making such purchases in March.

"In terms of our tools (to combat inflation), they're very effective at cooling aggregate demand," Brainard said, expressing confidence in the Fed's ability to address inflation.

But she acknowledged the bank could not do anything about the supply chain snarls that have sent prices up as demand rapidly outstripped the supply of available goods.

Inflation slowed a little in April but still remains high.