High inflation has shown early signs of moderating, giving the Fed the space to slow its interest rate increases, according to vice chair Lael Brainard.
Federal Reserve Chair Jerome Powell speaks during a news conference Wednesday, Dec. 14, 2022, at the Federal Reserve Board Building, in Washington.
Brainard did not specify whether she prefers a half-point or quarter-point hike, although she did nothing to push back against market expectations for a smaller increase next month. The Fed's No. 2 official also laid out a more optimistic outlook for inflation and the economy in her speech: She pointed to several recent reports that suggest higher interest rates are working and. The Labor Department reported last week that the consumer price index fell 0.1% over the course of December, the first monthly decline since 2020.
There are also signs the labor market is beginning to slow, with the economy adding just 223,000 jobs in December, the smallest gain in two years. On top of that, once red-hot wages are slowing, decreasing the odds that "we are not currently experiencing a 1970s-style wage-price spiral," Brainard said.
"For these reasons, it remains possible that a continued moderation in aggregate demand could facilitate continued easing in the labor market and reduction in inflation without a significant loss of employment," she added. have made it clear that they expect unemployment to climb as a result of higher rates, which could force consumers and businesses to pull back on spending.
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