Fed rate hikes' effect on inflation may take longer, says vice chair

By Ovunc Kutlu

ANKARA (AA) - The vice chair of US Federal Reserve said Monday that the effect of interest rate hikes on high inflation may take longer than anticipated.

The moderation on the demand side due to the Fed's aggressive monetary tightening "is only partly realized so far," Lael Brainard said in a speech at the 64th National Association for Business Economics annual meeting in Chicago.

"We are starting to see the effects in some areas, but it will take some time for the cumulative tightening to transmit throughout the economy and to bring inflation down," she added.

Brainard said the Fed's tighter monetary policy is mostly being seen in highly interest rate-sensitive sectors, such as housing, where house price appreciation has fallen sharply in recent months.

"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. The moderation in demand should be reinforced by the concurrent rapid global tightening of monetary policy," she said.

Charles Evans, head of the Federal Reserve Bank of Chicago, said earlier Monday that the Fed could bring inflation down "relatively quickly" while also avoiding a recession – called a soft landing – adding: "The consensus baseline is projecting a large decline in inflation over the next year and a half."

The Fed has increased its benchmark interest rate a total of 300 points since March in order to lower inflation, which is still hovering around a four-decade high of above 8% – far from the central bank's 2% goal.