The US economy will slow this year as intended and is expected to avoid a downturn, but the Federal ReserveFederal Reserve will have to raise borrowing rates quickly, according to a top central bank official on Tuesday, Jun 28. Recession is not my base case right now, a top central bank official said on Tuesday. John Williams, New York Fed President, said on CNBC that the economy is strong.
He said policymakers need to hike rates quickly to tamp down inflation pressures and get the key policy interest rate to 3.0 -- 3.5 per cent by the end of the year.
With American families struggling in the face of soaring gas and food prices, the Fed has shifted into high gear, putting in place the biggest rate hike in nearly 30 years earlier this month to try to cool the economy and rein in inflation.
The Fed has increased the benchmark borrowing rate 1.5 percentage points from zero since the start of the Covid-19 epidemic, and is expected to announce further increases at its July policy meeting in July, with further hikes coming.
The campaign to quell the highest inflation in four decades will plunge the world's largest economy into a recession, which has raised fears that it will lead to the highest inflation in four decades.
Williams echoed the cautiously optimistic view of the Fed chief Jerome Powell, saying there is a path forward that avoids a contraction.
Growth is expected to slow this year, with GDP increasing by 1.0 to 1.5 percent, he said.
It is not a recession, but it is a slowdown that we need to see in the economy to reduce the inflation pressures. Dana Peterson, chief economist at The Conference Board, said the United States will likely face a short downturn.
She said during a Politico event on Tuesday that the recession is expected to continue into the fourth quarter of this year and will extend into the first quarter of next year.
Williams noted that the main risks to the US economy are coming from abroad. The Russian invasion of Ukraine has been a major factor in the rise in food and oil prices worldwide.
He said it was perfectly reasonable to expect the Fed to raise the policy rate to 3.5 -- 4.0 per cent next year, but he said that the final path will depend on economic data.
He said that we need to raise interest rates a bit this year and into next year. We have to get interest rates higher and we have to do that quickly.