Fed Chair Jerome Powell Says He Doesn’t Know If He’s Causing Recession IG News

IG News Updates,

Federal Reserve Chairman Jerome Powell said Wednesday that he does not know whether higher interest rates will trigger a recession, but he does know that the economy has to pay a price for a reduction in inflation.

“We don’t know — nobody knows whether this process will lead to a recession, or if so, how significant this slowdown will be,” Powell told reporters at a news conference.

The Fed on Wednesday announced another three-quarter interest rate hike as part of its strategy to slow inflation by slowing economic growth.

Higher interest rates make money more expensive to borrow, resulting in households and businesses spending less, which in turn should not drive up prices for businesses. But there can be collateral damage in the form of mass layoffs because businesses will be making less money.

The average of economic projections among Federal Reserve officials, released Wednesday in conjunction with the rate hike announcement, suggests higher interest rates could push unemployment to 4.4% next year, personal consumption spending inflation to 2% in 2025. may decrease.

The current unemployment rate is 3.7%, up from a recent low of 3.5%. A well-known economic proposition holds that once the unemployment rate rises half a percentage point from its earlier low, it is a recession. So the average Fed forecast for next year suggests a recession is coming. (Recession is officially declared after the fact by the National Bureau of Economic Research.)

Powell cautioned that Fed officials don’t really know what will happen. And he’s made his most aggressive case yet that it’s possible that higher interest rates will only compound the unfinished business. Inauguration Without laying off millions of people.

“Vacancies are still approx [at a] 2-1 ratio for unemployed people,” Powell said.

But he stressed that the Fed’s main mission right now is to reduce inflation and suggested that failing to reduce it would ultimately be worse than rising unemployment.

“We’re never going to say there’s a lot of people working out, but the real thing is when we meet people we hear from them that they’re actually suffering from inflation,” Powell said. “We have to get inflation behind us. I wish there was a painless way to do this. There isn’t.”