Central bank officials are cautioning that there might be more increases coming.
Federal Reserve Chair Jerome Powell said Wednesday the central bank is nowhere near declaring victory over inflation but offered some good news: The Fed’s staff believes the U.S. will avoid a recession in 2023.
The Fed raised interest rates for the 11th time since March 2022 to their highest level in more than two decades to kill inflation, and central bank officials are cautioning that there might be more hikes on the way. Powell told reporters that the process of taming price spikes has “a long way to go,” which could mean increases in the unemployment rate and slower wage growth.
“Given the resilience of the economy recently they are no longer forecasting a recession,” the Fed chief said at his press conference.
While no one can say with any certainty what might happen over the next several months, the shifting forecast underscores how much inflation has come down over the past year — dropping to 3 percent in June from the previous year — even as unemployment has remained essentially flat.
The issue is whether this forecast merely shifts the timing of a recession into next year, or if the Fed can achieve a so-called soft landing, where the economy can avoid a recession even as growth slows — a crucial question for President Joe Biden heading into the election year.
“I wouldn’t use the term ‘optimism’ about this year,” Powell said. “I would say there’s a pathway to a soft landing.”
