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The US Fed Chief Believes That a Recession Is Very Likely

The head of the US Federal Reserve, Jerome Powell, cautioned that rapid rate hikes by the Fed could push the US economy into a recession even though the Fed is trying to reduce inflation without doing too much harm.

At a Senate Committee on Banking, Housing, and Urban Affairs hearing, Powell assured legislators that the country was “fully committed to getting inflation back down” and that it was making quick progress in that direction.

“My colleagues and I are acutely aware that high inflation imposes significant hardship, especially on those least able to meet the higher costs of necessities like food, housing, and transportation,” the Fed chair said, noting that the central bank is highly attentive to the risks of high inflation.

According to the Xinhua news agency, core PCE prices increased by 4.9% over the last year, while total personal consumption expenditures (PCE) prices increased by 6.3% overall.

In comparison to a year prior, the consumer price index (CPI) soared 8.6% in May.

The Fed increased the target range for the federal funds rate at each of the last three meetings due to inflation that has risen substantially beyond its longer-term objective of 2% and an abnormally tight labour market.


It increased interest rates last week by 75 basis points, which was the biggest rate increase since 1994.

Senator Elizabeth Warren, a Democrat, said that draconian rate increases would not only have little effect on reducing supply shocks that have driven up the cost of food and gas, but also could result in a major increase in job losses.

“Even worse than high inflation and low unemployment are… Millions of people are unemployed due to excessive inflation and the recession “Speaking to Powell, Warren stated.

And I sincerely hope you’ll change your mind as you push this economy over the edge.

Powell, though, asserted that “we do think it’s vitally essential that we restore price stability, really for the sake of the labour market as much as anything else.”

When questioned about whether rising interest rates too rapidly and drastically may cause one, the Fed chair agreed that it was a possibility. “That is obviously a possibility, but it was not at all what we had in mind. We don’t want to stir things up and don’t think we’ll need to.”

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The Fed chair acknowledged the possibility of a recession when asked if raising interest rates too quickly and significantly could do so. “Although that is most definitely a possibility, it is in no way what we planned to happen. We don’t intend to provoke and don’t believe that we will need to.”

Despite the upbeat outlook, an increasing number of economists and analysts are worried that the Fed’s increasingly aggressive posture could send the US economy into a recession.

The probability of recession, which was previously estimated by economists surveyed by The Wall Street Journal to be 28% in the coming year, has been drastically increased to 44% today.

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