Fed’s Lael Brainard: Policy taking hold on economy, with full impact still months ahead

Reuters reported that the Federal Reserve Vice Chair Lael Brainard said in a speech on Monday that tighter US monetary policy has begun to be felt in an economy that may be slowing faster than expected. She said, however, that the full brunt of Federal Reserve interest rate increases still won't be apparent for months

"Output has decelerated so far this year by more than anticipated, suggesting that policy tightening is having some effect" in sectors like housing that are directly influenced by borrowing costs for home mortgages, Brainard said in comments prepared for delivery to a National Association for Business Economics conference.

"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."
With foreign central banks all pulling in the same direction towards higher rates to fight inflation, she said, "the moderation in demand should be reinforced" even further.

"I now expect that the second-half rebound will be limited, and that real (gross domestic product) growth will be essentially flat this year," Brainard said.

"Uncertainty remains high, and I am paying close attention to the evolution of the outlook as well as global risks," that could stress financial markets Brainard said.

"In this environment, a sharp decrease in risk sentiment or other risk event that may be difficult to anticipate could be amplified, especially given fragile liquidity in core financial markets."

Still "monetary policy will be restrictive for some time to ensure that inflation moves back to target over time," Brainard said.

"In light of elevated global economic and financial uncertainty, moving forward deliberately and in a data-dependent manner will enable us to learn how economic activity, employment, and inflation are adjusting."

US dollar and bond yields update

The yield on the 10-year US Treasury bond has made a high of 3.992%, surging in the last hour of trade in what might be the last-ditch effort to breach the psychological 4.00% level having already cleared the prior week's highs. The next target beyond there is last month's high of 4.019%. In turn, the US dollar has reached a high of 113.333 after climbing from a low of 112.621 as per the DXY index which is now holding above both Friday's and last week's highs. 

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