Week After Interest Rake Hike, US Talks About “Possible Recession”

| Updated: June 23, 2022 5:17 pm

The head of the Federal Reserve, Jerome Powell, has declared that US recession is “definitely a possibility” and cautioned that preventing one would primarily depend on circumstances beyond the Federal Reserve’s control. In his testimony to the Senate Banking Committee, the Fed chair acknowledged it was now harder for the central bank to control surging inflation while sustaining a robust job market.

The likelihood of a recession in the next 12 months is now 44 per cent, up from 28 per cent in April, according to economists. Powell addressed the Senate Banking Committee Wednesday, a week after the Fed ordered the largest interest rate increase since 1994. The central bank is under growing pressure to combat inflation, which hit a four-decade high of 8.6% in May.

Financial professionals are warning their clients to hunker down and brace for a recession, which now seems all but certain to many. Although Powell conceded that external variables like the conflict in the Ukraine and China’s Covid-19 policy could further muddle the picture, he suggested that the US was sufficiently resilient to endure stricter monetary policy without entering a depression.

“We need to get inflation back down to 2 per cent,” Powell told lawmakers. “We’re using our tools to do that. And the public should believe that we will get inflation back down to 2 per cent over time.”

“You know what’s worse than high inflation and low unemployment?” Warren said. “It’s high inflation and a recession with millions of people out of work. I hope you’ll reconsider that, before you drive this economy off a cliff.” The Fed Reserve head urged on the need to restore price stability, “for the benefit of the labour market as much as anything else.”

Despite acknowledging that the likelihood of an economic downturn is increased by the ongoing conflict in Ukraine and persistent supply-chain issues, Powell emphasised that the economy is well-positioned to handle higher interest rates.

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