Fed Staff No Longer Predict Recession As Inflation Cools

Topline

After a year’s worth of warnings around a nationwide economic downturn, Federal Reserve Chair Jerome Powell on Wednesday said the central bank’s staff are no longer forecasting a recession, as the Fed aims to stem inflation by raising interest rates without causing an economic downturn.

Federal Reserve Chair Jerome Powell said the Fed is no longer predicting a recession.

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Key Facts

Powell said in a press conference the “resiliency in the economy” recently prompted Fed staff to downgrade their forecast, which Powell noted is “independent” of the predictions made by members of the Fed’s rate-setting committee.

The Fed had predicted a “mild recession” in April, and notes from the Federal Open Markets Committee said last month it was “quite likely” for the economy to tip into a recession this year, but that recession would be “neither deep nor prolonged.”

The new forecast comes on the heels of the Fed’s decision on Wednesday to raise interest rates by 25 basis points to a 22-year high, after leaving rates steady last month, as the Fed continues its aggressive rate hikes in an attempt to combat high inflation.

When asked about inflation, Powell said the Fed has “seen the beginnings of disinflation without any real costs in the labor market.”

News Peg

The Fed’s Open Market Committee decided unanimously this week to increase the federal funds rate to a target range of 5.25% to 5.5%, the highest level in 22 years, adding in an announcement that the central bank will “assess additional information and its implications for monetary policy.”

Key Background

The Fed’s campaign to hike interest rates had prompted fears of a recession, as rate increases usually stem inflation at the cost of slowing the economy. After reaching a 40-year high last summer, inflation last month fell to its lowest point in more than two years, with the Labor Department’s consumer price index coming in 3% higher than it was in June 2022—still somewhat above the Fed’s 2% target. The Fed also paused interest rate increases last month for the first time in more than a year amid signs stubbornly high inflation was continuing to cool, though Powell indicated at the time more rate increases could follow.

Tangent

After a seemingly endless stream of job cuts over the past 12 months centered primarily around manufacturing, tech and banking, layoffs in June dropped to a seven-month low, falling nearly 50% from May to June, according to a report from the firm Challenger Gray & Christmas. Layoffs in June were still above levels at the same time last year, however, and over the past month, more than a dozen U.S. companies including Biogen, have conducted major headcount reductions, with the biotech company slashing 1,000 positions (Forbes has tracked the biggest layoffs this spring and summer).

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