FED slow interest rise.

The Federal Reserve has «additional work to do» in its fight against inflation, the vice-chair of the US central bank said yesterday, even as she backed slowing the interest rate increases. Lael Brainard said the Fed should «soon» bring its string of supersized interest rate increases to an end, having raised rates by 0.75 percentage points at each of its four most recent meetings. «We’ve done a lot, but we have additional work to do both on raising rates and sustaining restraint to bring inflation down to 2 per cent over time,» she said, adding that while October’s better-than-expected inflation figure was «reassuring», it was only «preliminary». Brainard, one of the most dovish members on the Federal Open Market Committee, has long emphasised the need for the Fed to take into account not only the «cumulative» tightening delivered so far but also the lagged effects on consumer demand, the labour market and other metrics when considering how aggressively to raise interest rates.

She reiterated yesterday the importance of staying «vigilant» to potential global spillovers from the Fed and other central banks’ historically aggressive efforts to root out sky-high inflation. «We are highly cognisant that in a world where many central banks in large jurisdictions are tightening at the same time, that is greater than the sum of its parts,» she said. Brainard’s views have become more widely accepted across the Fed, with chair Jay Powell confirming at the latest policy meeting this month that a reduction in the pace of rate rises could come as soon as December. However, Powell added that stubbornly high inflation and a resilient labour market were likely to mean the Fed might ultimately need to push rates to a higher level and keep them «restrictive» for longer, suggesting more economic pain than was initially expected.

Much will depend on the trajectory for inflation, Fed governor Christopher Waller said in Australia yesterday. However, he added that the Fed still had «a ways to go» before pausing its rate rises.

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