Federal Reserve officials signalled they’re willing to tolerate a recession as a price paid for regaining control over inflation
Fed Signals Recession May Be a By-Product of Crushing Inflation. Source: shutterstock.com
Federal Reserve Chair Jerome Powell announced another interest rate rise by 75 basis points at the latest press conference. The Fed also forecast a further increase of 1.25 percentage points before the year’s end.
That forecast was more hawkish than economists expected. Besides, officials cut growth projections and raised their unemployment outlook. The noteworthy sign was that Powell repeatedly spoke of the slowdown needed to curb price pressures which may be a central bank euphemism for ‘recession’.
Such an assessment contrasts with the rosy prospects of six months ago when Fed officials hinted at the economy’s strength as a positive factor that may shield people from the negative effects of a slowing economy. Today, they implicitly acknowledge that demand will need to be curtailed at every level of the economy, due to the persistent and widespread nature of current inflation.
The median forecast among Fed officials is for unemployment to increase from 3.7% to 4.4% next year and stay at this level through 2024. They also projected interest rates to reach 4.4% this year and 4.6% in 2023, before moderating to 3.9% in 2024. Besides, even amidst a new rate-hike path, officials still don’t see inflation easing to the 2% target until 2025.
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