Powell: Fed staff no longer foreseeing recession.
Federal Reserve Staff No Longer Expecting a Recession, Says Fed Chairman
In a big reversal from just months ago, Federal Reserve staff no longer expect a recession, according to Fed Chairman Jerome Powell. Powell made this announcement during a press conference following the Fed’s decision to hike its interest rate target. This development bolsters the notion that the central bank can achieve a much-desired “soft landing” – bringing down inflation without causing a recession.
Positive Outlook for the Economy
Powell informed reporters that the Fed staff’s forecast now includes a noticeable slowdown in growth starting later this year. However, due to the economy’s recent resilience, they are no longer predicting a recession. Powell emphasized that the Fed staff’s forecasts are independent of the Federal Open Market Committee, the group responsible for determining the Fed’s target interest rate. While Powell refrained from using the term “optimism” just yet, he acknowledged that there is a pathway to achieving a soft landing.
“We’ve observed the beginnings of disinflation without any negative impact on the labor market, which is a positive development,” Powell stated.
A Reversal in Predictions
This news marks a significant reversal from earlier this year when the Fed staff presented a forecast that included a mild recession during the FOMC’s March meeting. It was the first time that Fed staff publicly acknowledged the likelihood of a recession. However, recent economic news, particularly the June reports showing a meaningful decline in the rate of inflation, has boosted the optimism of economists and investors.
The June consumer price index report revealed that inflation dropped to a 3% annual rate. This is a significant decrease from the over 9% rate seen last summer, which was driven by rising energy prices due to Russia’s invasion of Ukraine, as well as low interest rates and government stimulus.
Future Rate Hikes and Investor Expectations
While Powell did not rule out the possibility of more rate hikes during the press conference, most investors anticipate that the recent rate revision, bringing the Fed’s target range to 5.25% to 5.50%, will be the final hike in its tightening cycle. According to CME Group’s FedWatch tool, approximately three-fourths of investors believe that the Fed will maintain steady rates at its next meeting in September. This probability is calculated using futures contract prices for rates in the short-term market targeted by the Fed.
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