Federal second in command and vice chairman of the Fed Brenard reiterated that the Fed should keep monetary tightening for a certain period of time, but revealed the tendency to act cautiously against rate hikes, believing that the supply-strength US labor market has hope of a balance of supply and demand, saying that the Fed will consider the impact of policy spillovers.
On Monday, October 10, local time, Brainard pointed out in his speech that in an environment of high global uncertainty, it will take some time for the Fed to raise interest rates before it can produce results, that is, slow down the economy and reduce inflation.
"To tell us how to evaluate policy interest rates, the approach of being cautious and relying on data will allow us to understand how economic activity, employment and inflation are adjusted based on cumulative tightening."
"Monetary policy will be restrictive for a period of time to ensure inflation falls back to its target over time."
Brainard said that so far, the Federal Reserve's tightening of currencies has actually only played a part in the slowdown in demand. In the property market, the impact of tightening currency is the most obvious. There is lag in other economic fields. She also said that some preliminary signs of rebalancing supply and demand in the labor market were found against the backdrop of slowing economic output growth.
At the same time, in the following part of Monday's speech, Brainard mentioned that many central banks in the world's largest economies have raised interest rates by 125 basis points or more in the past six months, and the 10-year treasury bond yields in major economies in Canada, the United Kingdom, and the 10-year treasury bond yields have climbed 190 to 360 basis points this year. She said
"The combined impact of global joint austerity exceeds the part of a region (the impact of austerity). The Fed takes into account the spillover effects of rising interest rates, strengthening the dollar, and weaker demand in overseas economies on the United States, and the opposite direction (the impact)." The Fed "focuses on the risks of further negative shocks, such as the Russian-Ukrainian conflict and the COVID-19 pandemic.
Media comments said that Brainard's speech brought the possibility of the Fed's cautious interest rate hike.
In addition, in the Q&A session after the speech, Brainard said that the Federal Reserve's balance sheet reduction ( balance sheet reduction ) has encouraged currency tightening, and Fed officials are monitoring the impact of balance sheet reduction on financial markets. She said:
"We also realize that liquidity is a little fragile in core markets, so we carefully monitor the liquidity status of these markets." After Brainard's speech, the decline of US stocks narrowed significantly during the session. The Dow Jones Industrial Average, which had fallen nearly 290 points in the afternoon, turned short-term. The Nasdaq, which had fallen nearly 2% in the afternoon, narrowed its decline to less than 0.4%. The S&P 500, which had fallen more than 1.4% in the afternoon, fell less than 0.2%.
veteran dove Evans: After the rate hike reaches its peak, it should be maintained for a period of time. The observation effect of suspending interest rate hikes is the current market environment reminds people of December 2018
Before Brainard's speech, Chicago Fed Chairman Evans, who has been regarded as a dove official earlier this Monday, said that the Fed needs to keep interest rates high enough to slow economic growth. At present, inflation pressures are generally increasing in the US economy, and monetary policy must resolve these pressures. He said:
"If the rate hikes are not slowed down the speed of spending, employment and investment, inflation will not be close to our target level of 2% at all."
As chairman of the Chicago Fed, Evans will have the turn to enjoy the voting rights of the FOMC meeting next year, but he has previously stated that he will retire early next year. He said on Monday that a rapid rate hike is guaranteed because interest rates were too low before, but also suggested concerns about the cost of hikes.
Evans believes that after raising the policy interest rate to slightly above 4.5% by March next year, the Fed should be suitable to suspend interest rate hikes and see how the rate hikes are effective.
" Given that (policy interest rate) was far lower than the neutral interest rate level before, it is a good thing for the front-end to make efforts (rate hikes). However, excessive adjustments also come at a cost. There is a high uncertainty about what kind of restrictive policy it should actually become. Therefore, there is a good strategy, that is, when the interest rate reaches a certain position, you can plan a temporary suspension (action) and evaluate the data and situation development.”
Evans said that the Fed has actually decided to raise interest rates to limit (economic) growth levels in the coming months and will not be too sensitive to the data released in the next few months. This makes it a good idea to temporarily stop after the policy interest rate rises to 4.5% to 4.75%.
Evans admits that he has seen some positive signs in improving the high inflation environment. He expects inflation to improve, but also says that he needs to see that fact. He believes that the road to soft landing of the US economy is very narrow. We need to be wary of financial market stability. He said that the current market environment reminds him of the situation in December 2018.
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