Brainard: Less Hawkish Than She Could Have Been

A relatively dovish speech from VC Brainard takes the sting out of the day’s climb in Fed Funds implied hikes, with perhaps a larger reaction to come tomorrow with the US back from Columbus Day. Currently showing a 73.5bp hike for the Nov FOMC, with larger moves further out with a terminal 4.70% in Mar’23 before 4.45% for Dec’23. She still sees monetary policy as needing to be restrictive for some time and in Q&A repeats other FOMC commentary about the 1970s teaching risks of easing prematurely, but also notes:

• “the combined effect of concurrent global tightening is larger than the sum of its parts”,
• “the Federal Reserve takes into account the spillovers of higher interest rates, a stronger dollar, and weaker demand from foreign economies into the United States”
• “It will take time for the cumulative effect of tighter monetary policy to work through the economy broadly and to bring inflation down.”
• “by Board staff estimates, the revisions imply that the stock of excess savings held by households is about 25 percent lower [than first thought], which may imply a more subdued pace of consumer spending going forward than had been projected.”
• plus a more two-sided line that the Fed is “attentive to the risk of further adverse shocks”