Federal Reserve: It will take time to raise interest rates to curb inflation

NEW YORK – The Federal Reserve’s vice president warned Friday that it will take some time to see the full effect of anti-inflation measures and that rates must continue to rise, especially since additional inflationary pressures cannot be ruled out.

“It will take time for the full impact of tightening financial conditions across sectors and for lowering inflation to appear,” said Lael Brainard, the number two in the US central bank, during a speech at the Federal Reserve from New York. .

In the face of inflation that reached a 40-year high in June, before slowing slightly in July and August, the Federal Reserve raised its key rates, to create a deliberate slowdown in the economy.

Monetary policy should be tight for some time to make sure inflation returns to the target. For these reasons, we pledge to avoid a premature withdrawal,” added Ms Brainard, who is nonetheless part of the ‘cash doves’ camp, in favor of adequate monetary policy.

“Inflation is very high in the US and abroad, and the risk of additional inflationary shocks should not be ruled out,” she warned.

And so the Fed has raised its key rates five times since March, taking them from the 0-0.25% range they have been since March 2020, to 3.00-3.25%.

This is a “rapid pace by historical standards,” the Fed vice president said, who expects “more increases through the end of this year and into next.”

Globally, monetary tightening continues at a rapid pace by historical standards. Including the Federal Reserve, nine central banks in advanced economies representing half of global GDP have raised interest rates by 125 basis points (1.25 percentage points, editor’s note) or more in the past six months.

In August, year-on-year inflation slowed (6.4%), but rose again on an annualized basis (0.3%), according to the PCE, an inflation gauge published on Friday by the Commerce Department favored fueled by it. Central banks generally consider an inflation rate of 2% a level considered good for the economy.