Lael Brainard says FRS policy will remain restrictive

On Monday, Vice Chair of the FRS Lael Brainard said the heads of the Federal Reserve System understand how restrictive monetary policy is important to weaken inflation. However, the speed of the rate hike will depend on the incoming data as the bank closely monitors the economy and the development of global and domestic risks.

Brainard also added that the rate hike by the Federal Reserve System has led to a slowdown in economic growth, perhaps more than expected. Soon, the consequences of this step won’t yet be fully felt.

Moreover, according to Brainard, the foreign central banks fighting against inflation had increased the rates at the same time. It creates potential risks that should be controlled by the US authorities. Brainard said monetary policy will remain tight for a while until inflation eases. Credit rates will rise even stronger. However, FRS will act according to the situation, and the course of monetary policy will depend on internal and external risks, as well as incoming data.

Lael Brainard referred to the forecast regarding the movement of credit rates. In September, this forecast showed that next year the FRS expects to raise federal funds rates to 4.6.

In her speech at the NABE conference, she said that it would be risky for the FRS to retreat from tight monetary policy too early, and reducing inflation will take some time.

The poll conducted by NABE involved 45 forecasters. About half of them said that too tight monetary policy is the biggest threat to the prospects of the US economy.

FRS representatives largely ignored these concerns. They acknowledged the risks of a strong tightening while saying it is necessary to set a rate level that will control inflation and contain the economy.