Fed’s Brainard says pause in rate hikes unlikely

• The Fed has increased the benchmark interest rate twice.
• Brainard: “It’s very hard to see the case for a pause” during the Fed’s meeting.
• She said it was too early to tell when demand would soften and labor supply.

In the face of rising inflation, the US Federal Reserve’s vice chair stated on Thursday that there is no reason to delay rate hikes in September.

“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 emphasized that the central bank’s goal was to reduce inflation even if it meant slowing the U.S economy, but she noted that it was too early to know when demand would drop and employment would increase.

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Brainard, like Fed Chair Jerome Powell, indicated that rate hikes are driven by economic facts. Any September decisions will have to wait until the summer months’ data is ready.

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 raised the benchmark interest rate twice since March, by a total of 3 quarters of a percentage point, and has previously indicated that multiple half-point hikes are likely as it attempts to contain the highest inflation.

“We’re certainly going to do what is necessary to bring inflation back down,” Brainard said. “That’s our number one challenge.”

The Fed has also begun to reduce its balance sheet, after beginning a program in the early days of Covid-19 to purchase bonds and mortgage-backed assets in order to stabilize financial markets.

“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.

She did, but, confess that bank couldn’t do much about the supplier snarls which have forced price rise because demand has surpassed.

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