It likely would be “appropriate soon” for the US central bank to slow the pace of interest rate increases, US Federal Reserve Vice Chair Lael Brainard said on Monday.
Her comments came as red-hot consumer prices, which have squeezed US households, showed signs of easing, and after the Fed delivered a fourth straight super-sized rate hike to cool the economy.
However, with inflation still hovering close to the highest level in the past few decades, the Fed still has “additional work to do both on raising rates” and tamping down prices, she said at an event with Bloomberg.
Photo: Bloomberg
The closely watched consumer price index released last week showed that US inflation logged its lowest annual increase since January, fueling hopes that soaring costs would start to pull back.
The US central bank has this year raised the benchmark lending rate six times, despite fears that it could trigger a recession.
However, there is a growing chorus of voices, including some Fed officials, advocating for smaller steps in the coming months.
Brainard said that policymakers have raised rates “very rapidly” in the past few months, and said it would take time for tightening to flow through to the economy.
“By moving forward at a pace that’s more deliberate, we’ll be able to assess more data and be better able to adjust the path of rates to bring inflation down,” she said.
Russia’s invasion of Ukraine this year has sent food and fuel prices soaring, and the annual inflation rate hit a blistering 9.1 percent in June — its highest in four decades — but slowed to 7.7 percent last month.
“I think the inflation data was reassuring preliminarily,” Brainard said.
Excluding food and energy, officials are also beginning to see some goods prices decline, and this is a key trend that “will need to continue over the next year,” she said.
Brainard also weighed in on the fallout from the stunning collapse of cryptocurrency platform FTX.com, which declared bankruptcy in the US, expressing the need for regulation in the industry.
The situation at the company has reverberated across the digital currency landscape, and Brainard said it “reinforces” the fact that crypto finance “needs to be under the regulatory perimeter.”
She said that digital currencies are “no different than traditional finance in the risks that it exposes investors to” and flagged the need for “regulatory guardrails.”
This could mean bringing some into compliance with existing rules, or in some cases, expanding the reach of financial watchdogs, she said.
The Fed’s top banking cop has also signaled greater oversight ahead for crypto activity, pointing on Monday to a need for firms to face “similar regulatory safeguards as other financial services providers.”
“We do not want to stifle innovation, but when regulation is lax or behind the curve, it can facilitate risk-taking and a race to the bottom that puts consumers, businesses and the economy in danger,” Vice Chair of the Fed for Supervision Michael Barr said in prepared remarks released ahead of his appearance yesterday before the Senate Banking Committee.
While financial innovations offer opportunities, Barr said that “many innovations also carry risks” ranging from liquidity runs to the rapid collapse of asset values.
If not well-controlled, such risks can hurt retail investors, and recent events serve as a reminder of the potential for systemic issues “if interlinkages develop between the crypto system that exists today and the traditional financial system,” he said.
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