The American economy is slowing down, but not to the point of falling into recession, the president of the New York branch of the American central bank (Fed) said on Tuesday.
A recession is not currently my baseline scenario, John Williams told CNBC. I think the economy is strong, he added, stressing the need to raise interest rates quickly to curb inflation.
I expect growth to slow down a bit this year compared to what we had last year, (…) 1%-1.5%, he continued, noting that there is no It was not a recession, but a necessary slowdown in the economy to dampen inflation.
The forecasts of the Federal Reserve (Fed) in mid-June forecast a growth of 1.7% of the American GDP in 2022, instead of 2.8% previously estimated.
John Williams acknowledged that it is very difficult to predict a recession – which can occur for many reasons – and that the economy is not immune to unforeseen events.
But he believes that for now there is a way forward to reduce inflation while keeping the economy growing.
Asked about the possibility of the world’s largest economy suffering another shock from the outside, like the war in Ukraine, he replied that the Fed was monitoring all indicators very carefully, financial conditions, commodity prices and global growth.
The institution is also scrutinizing the effects of the tightening of financial conditions and the rise in oil prices.
At the moment, consumer spending seems to be on the right track, we are seeing a slowdown in some sectors, he noted.
Many economists believe, on the contrary, that the American economy will be in recession at the end of the year.
We expect a brief, mild recession beginning in the fourth quarter of this year and extending into the first quarter of next year, said Dana Peterson, chief economist at The Conference Board, a research group on Tuesday. own economic forecasts.
This group published an index measuring consumer confidence on Tuesday showing that it had fallen in June to its lowest level since February 2021.
Faced with inflation, which in May was still at a level not seen in 40 years, John Williams said he was convinced of the need to further increase key rates, even if some experts believe that this could precisely cause a recession.
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What I’m a bit more confident about is that we absolutely need to get the funds rate up to between 3.0 and 3.5% by the end of the year, he said. I am very confident on this point.
On the other hand, he was more reserved on the monetary policy to follow next year. Where exactly we need to be will depend on the economic data, he added.
John Williams also expects a debate at the end of July meeting between supporters of an increase of 0.50 percentage points and others in favor of an increase of 0.75 points.
He observed that the next meeting was in a month and that it was therefore necessary to wait for the publication of other economic indicators to take a decision.
Fed Chairman Jerome Powell insists that decisions are made based on data.
The powerful Federal Reserve has made three rate hikes since March. The latter are now in a range between 1.50% and 1.75% after remaining close to zero during the Covid-19 pandemic.