Federal Reserve Vice Chair Lael Brainard said in a speech on Monday that the tightening of US monetary policy has begun to bite into an economy that may be slowing faster than expected, Reuters reported. However, she said the full weight of the Fed’s interest rate hikes won’t be apparent for months yet.
“Production has slowed so far this year more than expected, which suggests that the tightening of policy is having some effect” in sectors such as housing, which is directly influenced by the costs of mortgage loans Brainard said in remarks prepared for his presentation at a conference of the National Association for Business Economics.
“In other sectors, transmission delays mean that the policy measures taken to date will have their full effect on activity in the coming quarters, and the effect on pricing may take longer.”
With foreign central banks all pulling in the same direction toward higher rates to fight inflation, he said, “the moderation in demand should be strengthened” further.
“I now expect the second-half rebound to be limited, and real (gross domestic product) growth to be essentially flat this year,” Brainard said.
“Uncertainty remains high, and I’m paying close attention to the evolving outlook as well as global risks” that could strain financial markets, Brainard said.
“In this environment, a sharp decline in risk sentiment or another difficult-to-anticipate risk event could be amplified, especially given fragile liquidity in core financial markets.”
Still, “monetary policy will be tight for some time to ensure inflation returns to target over time,” Brainard said.
“In light of heightened global economic and financial uncertainty, moving forward deliberately and data-driven will allow us to understand how economic activity, employment and inflation are adjusting.”
Dollar and Bond Yield Update
The yield on the 10-year US Treasury Bond has reached a high of 3.992%, rising in the last hour of trading in what could be the last effort to break above the psychological level of 4.00%, having already surpassed the highs of the previous week. The next target beyond that is last month’s high of 4,019%. For its part, the US dollar has reached a high of 113.333 after rising from a low of 112.621 according to the DXY index, which now stands above the highs of Friday and last week.
Source: Fx Street
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