<mediadc-video-embed data-state="{"cms.site.owner":{"_ref":"00000161-3486-d333-a9e9-76c6fbf30000","_type":"00000161-3461-dd66-ab67-fd6b93390000"},"cms.content.publishDate":1654194077344,"cms.content.publishUser":{"_ref":"0000017f-e2f4-de00-a7ff-e7fff8030000","_type":"00000161-3461-dd66-ab67-fd6b933a0007"},"cms.content.updateDate":1654194077344,"cms.content.updateUser":{"_ref":"0000017f-e2f4-de00-a7ff-e7fff8030000","_type":"00000161-3461-dd66-ab67-fd6b933a0007"},"rawHtml":"
var _bp = _bp||[]; _bp.push({ "div": "Brid_54193039", "obj": {"id":"27789","width":"16","height":"9","video":"1024458"} }); ","_id":"00000181-2598-dedf-ad93-bdfb30300000","_type":"2f5a8339-a89a-3738-9cd2-3ddf0c8da574"}”>Video EmbedLael Brainard, the vice chairwoman of the Federal Reserve, dismissed the notion that the central bank will be pausing its interest rate hiking agenda anytime soon, even as fears of a recession grow.
Brainard, who was nominated by President Joe Biden and sworn in last month, weighed in on the Fed’s plans to curb inflation on Thursday during her first interview since becoming the Fed’s No. 2. She suggested that the central bank will likely plow ahead with aggressive half percentage point rate hikes this summer and pushed back on the notion that the Fed will pause those increases.
“Right now, it’s very hard to see the case for a pause,” she told CNBC. “We’ve still got a lot of work to do to get inflation down to our 2% target.”
Consumer prices increased 8.3% in the 12 months ending in April, near the fastest rate since 1981. The Fed plays a key role in tamping those down and has begun quickly tightening its monetary policy in response to the surging inflation.
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While the central bank typically raises the federal funds rate in quarter percentage point intervals, it opted for a half percentage point hike at its last meeting in May and is signaling that it might continue the more aggressive increases in the coming months. Prior to last month’s hike, the last time interest rates were raised by a half percentage point was more than two decades ago.
The markets are pricing in half-point hikes in June and July — essentially akin to four rate hikes in two months — and Brainard suggested on Thursday that the assumption seems “reasonable.” She also said that while there is much uncertainty, if inflation remains stubborn, another of the more aggressive hikes might be in store for September.
“If we don’t see the kind of deceleration in monthly inflation prints, if we don’t see some of that really hot demand starting to cool a little bit, then it might well be appropriate to have another meeting where we proceed at the same [half-percentage-point] pace,” Brainard said. “If we are seeing a deceleration in the monthly prints, it might make sense to be proceeding at a slightly slower pace.”
Her remarks come after Federal Reserve Bank of Atlanta President Raphael Bostic raised the idea of a pause in interest rate hikes in September in remarks to reporters last week.
“I have got a baseline view where, for me, I think a pause in September might make sense,” Bostic said. “After we get through the summer, and we think about where we are in terms of policy, I think a lot of it will depend on the on-the-ground dynamics that we are starting to see. My motto is observe and adapt.”
Some economists are fearing that the rapidly increasing interest rates could cause the economy to crater into a recession. Stocks have been largely in the red this year as rates rise, with the stock market flirting with a bear market.
Late last month, the S&P 500 briefly entered bear market territory, which means that an index has dropped by at least 20% from a recent high. While the index has recovered some over the past week, the S&P 500 has fallen more than 13% since the start of the year, its most recent peak.
Goldman Sachs assigns a 35% chance of a recession in the next two years, while Wells Fargo’s economic model projects a 30% chance of a recession occurring in the next six months alone.
Even if the markets continue to worsen, the central bank appears to be ruling out a “Fed put,” which is the belief that the Fed will intervene when the stock market starts tanking by pausing its hiking cycle or lowering interest rates.
Federal Reserve Bank of Kansas City President Esther George said last month that while the stock market is suffering, it is not surprising and doesn’t change her support for aggressive future rate hikes.
Furthermore, Bostic told MarketWatch on Tuesday that his comments about a September pause in the rate hiking cycle were not meant to indicate support for a Fed put or central bank intervention in propping up the markets.
“I think it’s a good tale on some level for storybooks, but it’s not driving how I’m thinking about policy,” he said.
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The Fed has two mandates, achieving full employment and price stability. The unemployment rate is at an ultra-low 3.6%, and labor markets are tight, but inflation is the worst it has been in four decades. On Thursday, Brainard emphasized the importance of the Fed’s mission to drive down prices.
“We’re certainly going to do what is necessary to bring inflation back down,” Brainard said. “That’s our No. 1 challenge right now. We are starting from a position of strength. The economy has a lot of momentum.”
