Tuesday, October 4, 2022
Home BUSINESS Message from US Fed Chairman Powell: Fighting Inflation May Cause a Recession

Message from US Fed Chairman Powell: Fighting Inflation May Cause a Recession

The Federal Reserve delivered its most telling estimate on Wednesday of what it will take to finally tame painfully high inflation: slower growth, higher unemployment and potentially a recession.

At a news conference, Chairman Jerome Powell acknowledged what many economists have been saying for months: that the Fed’s goal of engineering a “soft landing,” in which it would succeed in slowing growth enough to curb inflation, but not so much as to cause a recession seems increasingly unlikely.

“The chances of a soft landing,” Powell said, “are likely to diminish” as the Fed steadily raises borrowing costs to curb the worst run of inflation in four decades.

“Nobody knows if this process will lead to a recession or, if so, how significant that recession would be.” Before Fed policymakers consider stopping their rate hikes, he said, they would need to see continued sluggish growth, a “modest” rise in unemployment, and “clear evidence” that inflation is returning to its 2020 target. 2 percent.

“We have to put inflation behind us,” Powell said. “I wish there was a painless way to do it. there isn’t.” Powell’s comments followed another substantial three-quarter point rate hike, the third in a row, by the Fed’s policymaking committee.

His latest action brought the Fed’s key short-term rate, which affects many consumer and business loans, to 3.25 percent from 3. That is its highest level since early 2008.

The drop in gasoline prices has slightly reduced headline inflation, which was still a painful 8.3 percent in August compared to a year earlier. Those falling prices at the gas pump could have contributed to a recent surge in President Joe Biden’s public approval ratings, which Democrats hope will improve his prospects in November’s midterm elections.

On Wednesday, Fed officials also forecast more huge hikes, raising their benchmark rate to about 4.4 percent by the end of the year, a full point higher than they had forecast in June.

And they hope to raise the rate again next year, to about 4.6 percent. That would be the highest level since 2007.

By raising lending rates, the Federal Reserve makes it more expensive to get a mortgage, car or business loan. So consumers and businesses presumably borrow and spend less, cooling the economy and slowing inflation.

In their quarterly economic forecasts, Fed policymakers also projected that economic growth will remain weak for years to come, with unemployment rising to 4.4 percent by the end of 2023, up from its current level of 3 .7 percent.

Historically, economists say, whenever unemployment has risen by half a point for several months, a recession has always followed.

RELATED ARTICLES

John Roberts and racial manipulation

Gerrymandering strictly by breed is illegal, so how can it be enforced? According to Alabama, that's Tuesday's question in the Supreme Court in...

MARKETS: Sensex off lows, down 250pts, Nifty close to 17,050; ONGC, Nykaa glitter

Stock Market Live Updates: Subdued risk appetite also sent broader markets into a tailspin as the Nifty MidCap 100 and Nifty SmallCap 100 each...

LEAVE A REPLY

Please enter your comment!
Please enter your name here

- Advertisment -

Most Popular

Technology must allow doctors to be doctors

When my doctor walks into the exam room, I want him to pay attention to me, not the computer. Not only is that...

System outages reported at some public hospitals and health facilities in Singapore

Over the past six weeks, system outages have been reported at some public hospitals and health centers of the National Health Group and the...

Mental health crisis teams are no longer just for cities

Tony Leys and Arielle ZiontsNEWTON, Iowa — Jeff White knows what can happen when 911 dispatchers get a call about someone feeling down or...

Supreme Court Quiz: How Much Do You Know?

The United States Supreme Court begins a new term on the first Monday in October. This is a landmark term because Ketanji Brown...