Fed staff no longer predict US recession, says Powell

Fed staff no longer predict US recession, says Powell

US Federal Reserve Chair Jerome Powell Expresses Optimism about US Economic Outlook

Federal Reserve

In a press conference following the Federal Reserve’s most recent interest-rate hike, US Federal Reserve Chair Jerome Powell struck an optimistic note, stating that the central bank’s staff no longer forecasts a US recession. He expressed confidence that there is a real possibility for inflation to return to target without significant job losses.

According to Powell, the Fed’s staff had previously predicted a notable slowdown in growth starting later this year. However, due to the resilience of the economy in recent times, they no longer believe a recession is in sight. This reversal comes after the staff had, in November, deemed a recession to be “almost as likely” as their earlier forecast of below-trend growth. And in March, they began predicting a mild recession later in the year, following the shockwaves caused by the collapse of Silicon Valley Bank.

The shift to a more positive outlook by the Fed’s staff aligns with similar upgrades made by private-sector economists in recent weeks. These experts, acknowledging the economy’s resilience despite the Fed’s rate increases since 2022, now see a “soft landing” as a likelier outcome than a recession.

Even among economists polled by Reuters, there is a consensus estimate that the first reading of gross domestic product (GDP) for the second quarter of the year will show a growth rate of 1.8% on an annualized basis. This is in line with the 2% rate recorded in the first three months. Such figures lend further support to the belief in a stable economic outlook.

The Federal Reserve policymakers themselves also slightly upgraded their assessment of economic activity alongside their decision to raise interest rates. In their statement, they described recent activity as indicating a “moderate” rate of growth, a departure from their previous characterizations of “modest” growth since September.

The overall sentiment from Powell’s remarks and the consensus among economists suggests growing confidence in the strength and durability of the US economy. This optimism extends to the potential for inflation to stabilize without causing significant job losses. It is important to note, however, that while risks of a recession may have diminished, economic conditions can change rapidly, making it necessary to remain vigilant and adaptive in this ever-evolving landscape.