Fed deputy chair confirms rate hike course despite poor growth prospects

Lael Brainard

The deputy chair of the Fed expects a “considerable weakening of the industrial sector” in the coming year.

(Photo: Bloomberg)

Washington In view of the diminishing risk of recession, the US Federal Reserve will remain on course to raise interest rates, according to its deputy chairwoman Lael Brainard. The chances of a soft landing for the economy appear to be increasing, Fed Chair Jerome Powell, Deputy Chair, said at an event at the Chicago Booth School of Business on Thursday. A recession could possibly be avoided.

In the scenario she outlines, it is therefore possible for inflation to be pushed down without a major bloodletting of jobs being associated with it. However, data pointed to subdued economic growth this year. Brainard mentioned a “considerable weakening of the industrial sector” and restrained consumption. Even if the Fed first has to analyze the progress it has made in the fight against inflation, it will “stay on course”.

Although inflation has weakened recently, it is still high. According to Brainard, monetary policy must therefore remain sufficiently tight for some time so that the target of an inflation rate of 2.0 percent can be achieved in the long term. “We are still exploring the sufficiently restrictive level,” she added. The logic behind the monetary policy decision in December to come to smaller rate hikes is still “very applicable” today, she said in a question and answer session.

Interest rate peak soon in sight?

Brainard’s speech was well received on Wall Street. The Dow Jones index of standard values, the broader S&P 500.SPX and the index of the technology exchange Nasdaq were each around half a percent in the red, according to the statements. Previously, they had each lost around one percent due to fears of recession according to the new economic figures.

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In view of the still fairly stable economy and the ebbing wave of inflation, the financial markets are expecting the Fed to raise the key interest rate by just a quarter of a percentage point at the beginning of February. The key monetary policy rate has been in the 4.25 to 4.50 percent range since the half a percentage point hike in December.

US currency watchdog Susan Collins is also calling for the pace of interest rate hikes to slow down. After the aggressive pace of the previous year, a more moderate approach is now appropriate. She locates the interest rate peak at “just above” the five percent mark. After that, this level must be maintained for some time, said the head of the Boston Federal Reserve District.

More: Lagarde is pushing for more significant rate hikes – and warning investors

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