News Karnataka
Monday, September 26 2022
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Recession is certainly a possibility, says US Fed chief

Photo Credit : IANS

Washington: US Federal Reserve Chair Jerome Powell said that the central bank is trying to bring inflation down without inflicting too much damage, but the Fed’s aggressive rate hikes could tip the American economy into recession.

“We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so,” Powell told lawmakers at a hearing held by the Senate Committee on Banking, Housing, and Urban Affairs.

“My colleagues and I are acutely aware that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food, housing, and transportation,” said the Fed chair, noting that the central bank is highly attentive to the risks of high inflation.

Over the 12 months ending in April, total personal consumption expenditures (PCE) prices rose 6.3 per cent; excluding the volatile food and energy categories, core PCE prices rose 4.9 per cent, reports Xinhua news agency.

The consumer price index (CPI) skyrocketed 8.6 per cent in May from a year earlier.

With inflation well above the Fed’s longer-run goal of 2 per cent and an extremely tight labour market, the Fed raised the target range for the federal funds rate at each of the past three meetings.

Last week, it raised rates by 75 basis points, marking the sharpest rate hike since 1994.

Democratic Senator Elizabeth Warren argued that aggressive rate hikes would do little to ease the supply shocks that have driven up the price of gas and food, but could lead to significant rise in layoffs.

“You know what’s worse than high inflation and low unemployment? It’s high inflation and a recession with millions of people out of work,” Warren said when questioning Powell.

“And I hope you’ll reconsider that as you drive this economy off a cliff.”

Powell, however, said that “we do think it’s absolutely essential that we restore price stability, really for the benefit of the labor market as much as anything else.”

When asked whether raising interest rates too much and too fast could tip the economy into a recession, the Fed chair said it’s a possibility. “It’s not our intended outcome at all, but it’s certainly a possibility. We’re not trying to provoke, and don’t think that we will need to provoke a recession.”

Despite the optimism, a growing number of economists and analysts are concerned that the Fed’s more hawkish stance could plunge the US economy into a recession.

Economists recently surveyed by The Wall Street Journal have dramatically raised the probability of recession, now putting it at 44 per cent in the next 12 months, up from 28 per cent in April.

The latest figure shows a level “usually seen only on the brink of or during actual recessions”.

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