The American central bank (Federal Reserve, Fed), in the maneuver to try to slow down inflation in the United States, will continue to tighten its monetary policy as long as necessary, reaffirmed on Wednesday the vice-president of the institution, Lael Brainard.
The Fed will stay in this process “as long as necessary to bring inflation down,” she said in a speech at the Clearing House and Bank Policy Institute in New York.
Inflation slowed in July in the United States, after hitting a 40-year high in June. However, it remains very high, at 8.5% according to the CPI index – on which pensions, among others, are indexed – and at 6.3% according to the PCE index, followed by the Fed.
This slowdown “is welcome, but it will be necessary to see several months of low inflation to be confident that inflation is slowing towards 2%”, the Fed’s objective, considered healthy for the economy.
To ease the pressure on prices, the Fed is seeking to provoke a voluntary slowdown in the economy, by gradually raising its key rates in order to curb consumption.
It has raised them four times since March, and they are now in a range of 2.25 to 2.50%.
It should raise them again on September 21, at the next meeting of the Monetary Policy Committee (FOMC), its decision-making body.
“So far, we have quickly raised policy rates to the peak of the previous cycle, and policy rates will need to rise further,” said Lael Brainard.
“Monetary policy will have to be restrictive for a while to give the assurance that inflation is approaching the objective,” added the number two of the powerful institution.
“Although the precise course of action depends on how the outlook evolves, I am confident that we will achieve a return to 2% inflation,” she said.
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However, Lael Brainard warned that “it may take some time before the full effect of these tighter financial conditions is felt in the economy”, and that “the process of disinflation at home will have to be reinforced by a weaker demand and a tightening in many other countries”.
She also warned against the “risks associated with an excessive tightening” of monetary conditions, but also, conversely, on the importance of “avoiding the risk of stopping too soon”.
Cleveland Fed President Loretta Mester had indicated earlier in the day that she felt it necessary at this stage to raise key rates to just above 4% at the start of the month. next year, “and to maintain them at this level”.
It again indicated that it does not expect a rate cut in 2023.
This member of the FOMC, who has rotating voting rights in 2023, believes, however, that it will not be “appropriate” to wait for inflation to drop to 2% to stop raising rates.