The American economy is slowing down, but not to the point of falling into recession, said Tuesday the president of the New York branch of the American Central Bank (Fed).
A recession is not currently my baseline scenario, John Williams told CNBC. I think the economy is strong, he added, stressing the need for raise interest rates quickly to curb inflation.
I expect the growth to slow down a bit this year compared to what we had last year, (…) 1%-1.5%he continued, noting that this was not a recession, but a slowdown necessary to dampen inflation.
Central Bank forecasts in mid-June projected growth of 1.7% of US GDP in 2022, instead of 2.8% previously estimated. John Williams acknowledged that forecasting a recession is very difficult and that the economy is not immune to unforeseen events.
A way forward
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.
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Debate in perspective
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. What I’m a little more sure of is that we definitely need to raise the funds rate between 3.0 and 3.5% by the end of the year, he said. I have great confidence in this.
On the other hand, he said he was more reserved about next year. Where exactly we need to be will depend on the economic data, he added. John Williams has also said he expects a debate at the July meeting at the end of July between those who want a rise in 0.50 point percentage and those in favor of an increase in 0.75 points.
The Fed has made three rate hikes since March, which are now in a range between 1.50 1.75% and set the tone for loans granted to individuals and businesses.
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