“The economy can withstand a tightening of monetary policy”, estimated the boss of the Fed, shortly after the announcement by the Fed of a rate hike of a quarter point, the first of a bullish cycle aimed at to curb inflation.
(Boursier.com) — The chairman of the US Federal Reserve, Jerome Powell, does not foresee a recession in the United States despite the cycle of key rate hikes started on Wednesday by the central bank to curb soaring inflation.
The economy “no longer needs a very accommodating policy”, and it “can support a tightening of monetary policy”, he estimated, during the press conference following the announcement by the Fed a quarter-point increase in its main key rate, the first stage of a bullish cycle aimed at curbing inflation and bringing it back towards the Fed’s 2% target. “From my point of view, the probability of a recession in the next year is not particularly high”, he added.
Stressing on several occasions the “solidity” of the American economy, Jerome Powell estimated that American households and businesses were in good financial health and should be able to absorb the rate hikes planned by the central bank. “All signs show that we have a robust economy. Household and corporate balance sheets are strong,” he said.
Fed ready to accelerate rate hike if inflation gets out of hand
Asked about the pace of future rate hikes, he said the process would be “steady, year-round,” but added that the Fed needed to be “agile,” and that “if the inflation shows that it is necessary to raise rates more quickly, we will do it”.
He acknowledged that inflation “will take longer than expected to return to the target” of 2% that the Fed has set for itself, but reiterated that “we will take the necessary measures to avoid an anchoring of high inflation”. According to him, inflation should start to decline in the second half of 2022 and continue on this path in 2023.
In its statement, the Fed said Russia’s invasion of Ukraine would have “highly uncertain” implications for the US economy. “But in the short term, the invasion and subsequent events are likely to create new upside pressures on inflation and weigh on economic activity”.
Inflation revised up and growth down for 2022
According to the Fed’s new macroeconomic projections released Wednesday evening, the Fed is considering Six more quarter-point tightenings by the end of 2022 to bring its key rate between 1.75% and 2%. Three other increases should still occur in 2023 to reach 2.8%, according to these projections.
Inflation measured by the Core PCE index has been revised up sharply to 4.1% in 2022 instead of the expected 2.7% during the December projections, and should then return to 2.6% in 2023 (against 2.3% in December) then to 2.3% in 2024 (2.1% in December).
At the same time, the Federal Reserve has significantly revised down its forecast for economic growth in the United States for 2022, now expected at 2.8% instead of 4% scheduled for December. GDP growth forecasts then remain unchanged for 2023, at 2.2%, and 2024, at 2%. The unemployment rate is still expected at 3.5% this year and in 2023, then at 3.6% in 2024.