[Comprehensive] Fed No. 2 Says "No Pause in September Rate Hike"... Leaves Room for Speed Adjustment

[Image source=Yonhap News]

[Asia Economy New York=Special Correspondent Joesulgina] Lael Brainard, the second-in-command at the U.S. central bank, the Federal Reserve (Fed), clearly drew a line against the notion of a 'pause in rate hikes in September' raised by some quarters. However, she left room for adjusting the pace of hikes if signs of easing inflation appear.

On the 2nd (local time), Brainard appeared on CNBC’s "Squawk on the Street" and said, "It is very hard to see a pause (in rate hikes) right now." She emphasized, "There is still a lot to do to bring inflation down to the 2% target." She also stated, "We will definitely do what is necessary to reverse inflation. This is our number one challenge," signaling that the Fed will continue its rate hike trajectory for the time being.

This was seen as a rebuttal to recent remarks by Raphael Bostic, President of the Atlanta Federal Reserve Bank, who mentioned that after raising rates by 0.5 percentage points in the June and July Federal Open Market Committee (FOMC) meetings, the Fed could take a break in September to assess the situation. Following Bostic’s comments, market expectations for a temporary pause quickly spread.

In particular, U.S. President Joe Biden’s recent meeting with Fed Chair Jerome Powell ahead of the November midterm elections also fueled the pause theory. It is speculated that President Biden, mindful of voter sentiment, pressured for a "slowdown for economic stimulus" starting just before the midterms following the "tightening-inflation easing" measures. The Fed’s recently released Beige Book on economic conditions also included indications of economic slowdown in some U.S. regions.

Local media analyzed Brainard’s remarks as a clear indication that the pause theory is a minority view within the Fed. The Fed has already made the so-called "big step" of raising the benchmark interest rate by 0.5 percentage points at once a reality for at least June and July, following May. However, opinions diverge regarding the path after September.

That said, Brainard left room regarding the future pace of hikes. She evaluated, "If the pace of inflation increase slows down, it could make sense to proceed at a somewhat slower pace." On the same day, Loretta Mester, President of the Cleveland Fed, also said, "If strong evidence emerges that inflation is falling before the September FOMC, the pace of hikes could slow down. But if not, larger hikes will be necessary."

Currently, the futures market reflects policy rates reaching 2.75?3.0% by the end of the year. This level requires a total rate increase of more than 2.0 percentage points over the remaining five FOMC meetings this year.

The U.S. employment data released that day eased concerns about monetary tightening as it fell short of market expectations. According to the Department of Labor, May ADP private sector employment increased by 128,000, far below the initial forecast of 300,000. This is the lowest since April 2020. Weekly initial jobless claims for the fourth week of May were also 200,000, below both the previous week and expectations. Beth Ryan of Deutsche Bank assessed, "Financial tightening has begun to negatively affect employment." Experts are focusing on the employment data to be released by the Department of Labor on the 3rd.

Meanwhile, as expectations for a slowdown in the pace of rate hikes spread, the New York stock market closed higher across the board that day. Buying at low prices was confirmed mainly in rate-sensitive tech stocks, with the Nasdaq index jumping 2.69% compared to the previous session.

This content was produced with the assistance of AI translation services.