A US economic recession is in the cards because of what the Federal Reserve must do to cool inflation, said former New York Fed President William Dudley, but it probably won’t be a severe slowdown.
“A recession is pretty likely just because of what the Fed has to do,” he said in an interview on Bloomberg Surveillance Tuesday. “But what’s different this time I think is that if we have a recession, it’s going to be a Fed-induced recession and the Fed can end the recession by subsequently easing monetary policy.”
The US central bank raised interest rates aggressively last year to curb the highest inflation in four decades and has said it will keep at it until it gets the job done.
Dudley, a senior adviser to Bloomberg Economics, said the Fed needs to drive up the unemployment rate sufficiently to slow down the economy to generate slack in the labor market and bring wage inflation down to a level consistent with its 2% inflation goal.
But because the central bank is the one engineering the slowdown, “I don’t think that there’s a big risk of a financial-instability cataclysm that pushes the economy into a deep recession,” he said.
--With assistance from Tom Keene, Jonathan Ferro and Lisa Abramowicz.
This article was provided by Bloomberg News.