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A U.S. recession is “not our intended outcome at all but it’s certainly a possibility,” U.S. Federal Reserve chair Jerome Powell said in testimony before the Senate banking committee on 22 June.
The nation’s economy is “very strong,” he told lawmakers, but warned that new inflation surprises “could be in store.”
Containing inflation, running at 8.6 percent in May, has become more challenging for the Fed, he admitted.
Regarding the Fed’s goal of reining inflation back to the central bank’s 2-percent target, Powell said, “the question of whether we are going to accomplish it is going to depend to some extent on factors we don’t control,” such as commodity prices spiking in the wake of the Ukraine war and the possibility that China might impose more anti-COVID lockdowns.
A key urgency is to keep inflation from becoming embedded in the economy, Powell said.
“We know from history that that will hurt people in the lower income spectrum,” he added.
TREND FORECAST: If Powell were to be blunt, which is not his habit, he would say that the U.S. economy is weakening along with the rest of the world. A combination of a slowing economy and rising prices is the definition of Dragflation, a Top 2022 Trend.
But who would listen to Powell and believe what he says? As for the Feds getting inflation forecasts wrong, see our article, “Fed Officials Send Mixed Signals on Policy Shift” (29 Jun 2021). We noted that, “At his December 2020 press conference, Fed chair Jerome Powell pointed to “disinflationary pressures around the globe” and said “It’s not going to be easy to have inflation move up.”
A month later, Powell acknowledged that inflation was on the move but said any rise above the Fed’s 2-percent target rate would be “transient.”
Also, while the Fed insisted that it would not raise rates until 2024—which goes totally unreported—we had forecast that hikes would begin sooner because inflation would spike and the damage could no longer be covered up… which they now have done.
The U.S. is already hedging on Dragflation, a condition that will worsen as interest rates rise higher, and consumers pay more to buy less and the phony propped up residential real estate market retracts.
TREND FORECAST: As we note above, the Bank for International Settlement has warned of the economic dangers ahead and earlier this month the World Bank warned that global growth could essentially be choked due to the Ukraine War, supply chain issues, COVID lockdowns in major Chinese cities, and dramatic increases in food and energy prices.
David Malpass, the bank’s president, said, “For many countries, recession will be hard to avoid.”
And last week, the International Monetary Fund (IMF) slashed its forecast for growth in the U.S. economy from 3.7 percent to 2.9 percent for the year.
“There is a narrowing path to avoiding a recession in the U.S.,” IMF Managing Director Kristalina Georgieva said in announcing the revised forecast. However, the U.S. will “narrowly” avert a recession, the agency predicted. They also forecast that the U.S. growth rate in 2023 will be 1.7 percent, not 2.3 percent as the IMF had predicted two months ago.
There are too many wild cards being played in the socioeconomic and geopolitical deck to give an accurate forecast. Among the two major ones are the Ukraine War and how fast and how high the U.S. and the EU will raise interest rates.