Fed vice chair says it may soon be appropriate to slow rate hikes

“I think it will probably be appropriate soon to move to a slower pace of rate increases,” said Federal Reserve Vice Chair Lael Brainard in a live interview with Bloomberg News. Pundits suggest her remarks hint at the possibility that the Fed might shift the gear down from the giant step (an increase of 0.75 percentage points of base rate) to the big step (an increase of 0.5 percent points).

“There are likely to be lags, and it’s going to take some time for that cumulative tightening to flow through,” she said, explaining the rationale behind the adjustment. She stressed that this does not mean giving up on the monetary tightening policy for curbing inflation.

When the coronavirus infection peaked, the United States conducted massive quantitative easing, injecting liquidity into the market to stave off recession. And the country faced the worst inflation in about 40 years amidst the double whammy of the Russian invasion of Ukraine and global energy and food crises. In response, the Fed tightened its belt, taking giant steps for the fourth consecutive time from June to October, with the base rates shooting up from 0-0.25 percent to 3.75-4.0 percent. Concerns are brewing that this might lead to global recession as other economies follow suit after the U.S. takes austerity measures.

Despite the slowdown, however, the Fed’s rate increase will likely continue for the time being. “These rates are going to stay, keep going up, and they are going to stay high for a while until we see this inflation get down closer to our target (2 percent),” Christopher Waller, one of the U.S. central bank’s more hawkish policymakers, said in an interview with Bloomberg. Last month, America’s consumer price index (CPI) rose 7.7% in October year-on-year, lower than market expectation. Still, some experts are of the view that the base rates might hit the 6-percent mark next year.


Eun-Taek Lee nabi@donga.com