On Monday, Federal Reserve Vice Chair Lael Brainard explained how the central bank’s interest rate hikes will affect the U.S. economy.
The Federal Reserve raised interest rates by three-quarters of a percentage point last month, the third consecutive increase of that size.
“The moderation in demand due to monetary policy tightening is only partly realized so far,” Brainard began. “The transmission of tighter policy is most evident in highly interest-sensitive sectors like housing, where mortgage rates have more than doubled year to date and house price appreciation has fallen sharply over recent months and is on track to soon be flat.”
“In other sectors, lags in transmission mean that policy actions to date will have their full effect on activity in coming quarters, and the effect on price setting may take longer,” Brainard continued. “The moderation in demand should be reinforced by the concurrent rapid global tightening of monetary policy.”
Inflation remains elevated at nearly the highest level in 40 years with prices rising 8.3% over the last year, according to the most recent numbers from the Bureau of Labor Statistics.
In June, Federal Reserve Chair Jerome Powell warned that the central bank was committed to bringing inflation down to two percent and that the process will “involve some pain.”
“We are committed to and will succeed in getting inflation down to two percent,” Powell said at the time. “The process is likely, highly likely to involve some pain, but the worst pain would be from failing to address this high inflation and allowing it to become persistent.”
