Fed financial coverage is hurting financial system, however with full influence months away, says Brainard

The United States’ tighter monetary policy has begun to be felt in an economy that may be decelerating faster than expected, but the full brunt of the Federal Reserve’s interest rate hikes won’t be apparent for months yet, the deputy said. Fed Chair Lael Brainard this Monday.

“Production has slowed so far this year more than anticipated, suggesting that monetary policy tightening is having some effect” on sectors such as housing, which are directly influenced by borrowing costs for residential mortgages, Brainard said in prepared remarks. for a conference of the National Association for Business Economics.

“In other sectors, delays in transmission mean that monetary policy actions to date will have their full effect on activity in the coming quarters, and the effect on pricing may take longer.”

With foreign central banks all moving towards higher rates to fight inflation, she said, “the moderation in demand must be reinforced” even further.

“I now expect the second-half recovery to be limited and real (GDP) growth to be essentially stable this year,” Brainard said.

Still, the Fed vice chair gave no indication that economic weakness was at a point that would change the central bank’s plans to continue to raise borrowing costs.

“Uncertainty remains high and I’m paying close attention to evolving prospects as well as global risks,” which could stress financial markets, Brainard said. “In this environment, a sharp drop in risk sentiment or other risk event that may be difficult to anticipate could be amplified, especially given the fragile liquidity in major financial markets.”

Still, “monetary policy will be tight for some time to ensure that inflation returns to target over time,” Brainard said. “In light of heightened global economic and financial uncertainty, moving forward deliberately and in a data-dependent manner will allow us to learn how economic activity, employment and inflation are adjusting.”

Source: Reuters