Former New York Fed President Bill Dudley said in a Bloomberg Opinion column Wednesday that a recession is “inevitable” within the next 12 to 18 months. An economist at the Fed, Michael Kiley, said in a paper Tuesday that the risk of a large increase in the unemployment rate is above 50% over the next four quarters, based on a simulation incorporating inflation data, unemployment, corporate bond yields and Treasury yields.
“The American economy is very strong and well positioned to handle tighter monetary policy,” Powell said in his opening remarks.
Concern over the outlook for global growth has seen oil prices ease back somewhat in the last few days, potentially providing some relief to sky-high gasoline prices. At the same time, US hiring remains strong and consumption indicators suggest demand is holding up despite the blow to real disposable income from higher inflation.
Powell, in Wednesday’s testimony, called the labor market “extremely tight.”
“The tightening in financial conditions that we have seen in recent months should continue to temper growth and help bring demand into better balance with supply,” Powell said.
Policy makers’ latest forecasts, released last week, show the level of rates roughly doubling in the second half of the year to a target range of 3.25% to 3.5%. They saw rates peaking next year at 3.8%.
Officials have also begun shrinking their massive balance sheet. The combined impact of higher borrowing costs and so-called quantitative tightening is expected to come at some cost to jobs.
Unemployment was near a 50-year low of 3.6% last month and Fed officials forecast it rising to 4.1% by the end of 2024, when they see rates peaking at 3.8%. Inflation was projected to decline toward their 2% goal by then from current readings of more than three times that level, according to the gauge that the Fed targets.
Forward guidance from officials on the future path of policy, as well as the rate increases they’ve already delivered, have helped push 10-year Treasury yields above 3%, about double from the start of the year, while the S&P 500 stock index is down more than 20%. Surging mortgage rates are helping to cool the the housing market.
This article was provides by Bloomberg News.