Fed: It will take time and determination to bring inflation back to the 2% target — Lael Brainard

Vice President Lael Brainard affirms that “there are reasons to think that the high inflation in the basket of basic services (excluding housing), which is more sensitive to labor, could reflect the repercussions of pandemics and specific war conflicts, and not only the cyclical strength of tense labor markets.

“Inflation has been declining in recent months against a background of subdued growth,” Brainard said in prepared remarks for a speech noting “significant weakening in the Manufacturing sector,” a restraint in consumer spending. and other data that now point to “moderate growth” in 2023.

main comments

“The full effect on demand, employment and inflation of the cumulative tightening that is underway is likely yet to come,” Brainard said in remarks to a speech at the University of Chicago Booth School of Business.

“It remains possible that a continued moderation in aggregate demand could facilitate a continued easing in the labor market and a reduction in inflation without significant job loss,” Brainard said.

“Even with the recent moderation, inflation remains high, and policy will need to be tight enough for some time to ensure that inflation returns to 2% on a sustained basis,” Brainard said.

key notes

The recent slowdown in the pace of rate hikes allows the US central bank to assess more data in order to place monetary policy sufficiently tight.

It will take time and determination to bring high inflation down to the 2% target set by the Fed.
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The policy will need to be restrictive enough for some time.

Inflation has eased and data points to moderate growth.

The drag of monetary policy on economic growth and employment in the US will “probably increase” in 2023.

Signs of cooling demand for labor suggest that the supply of labor will remain tight.

Wages do not seem to be the engine of inflation and there is no spiral of prices and wages like that of the 1970s.

Tentative signs of moderation in wage growth.

He affirms that a risk management stance is necessary to defend the anchoring of inflation expectations.

US dollar update

Despite continued hawkish rhetoric from Fed officials this week, the US dollar has fallen on disinflationary data contrary to the Fed’s hawkish stance:

The US Dollar Index, DXY, has subsequently been unable to lift off the bottom, an area on the charts that was highlighted as a bearish target as follows:

”The DXY Index, above, shows the US dollar finding resistance in a W formation on the hourly chart. A supply correction could be expected to meet 102.00/20 in the coming sessions as price returns to the neckline of the pattern at a 38.2% correction of the Fibonacci level.”