The Fed Vice Chair warned on Friday that it would take time to see the full effect of inflation-fighting measures and that rates should continue to rise, especially since additional inflationary pressures are not to exclude.
It will take time for the full effect of the tightening of financial conditions to be felt in different sectors and bring down inflation, said the number two of the American central bank Lael Brainard, during a speech at the New York Fed. .
Faced with inflation that reached its highest level in 40 years in June, before slowing down a little in July and August, the Fed is raising its key rates to provoke a deliberate slowdown in the economy.
Monetary policy will need to be tight for some time to be sure that inflation is back on target. For these reasons, we undertake to avoid withdrawing prematurely, added Ms. Brainard, who is nevertheless part of the camp of money doves, a supporter of an accommodating monetary policy.
But inflation is very high in the United States and abroad, and the risk of further inflationary shocks should not be ruled out, she warned.
The Fed has thus raised its key rates five times since March, taking them from the range of 0-0.25% in which they have been since March 2020, to that of 3.00-3.25%.
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That’s a fast pace by historical standards, said the Fed vice-chairwoman, who expects further hikes throughout the end of this year and next year.
Globally, monetary policy tightening also continues at a rapid pace by historical standards. Including the Fed, nine central banks of advanced economies representing half of the world’s GDP have raised their rates by 125 basis points (1.25 percentage points, editor’s note) or more in the past six months, according to she adds.
In August, inflation slowed down over one year (6.4%), but rose again over one month (0.3%), according to the PCE index, one of the measures of inflation, publishes Friday by the Commerce Department and which is favored by the Fed. Central banks generally consider 2% inflation to be a level considered healthy for the economy.