Rapid increases in the Federal Reserve rate could push the US economy into recession. Jerome Powell, head of the US central bank system, admitted this at a hearing with senators.
June 22 2022
In the same conversation with members of Congress, Powell described the economy’s quiet downturn after rising interest rates as a “huge challenge.” At the same time, the probability of a recession, which occurs in two consecutive quarters of economic downturn, is not exceptionally high, according to the central bank. But “this is definitely a possibility.”
Economists and financial sector leaders are increasingly taking into account the recession in the United States. Last week, the Fed raised interest rates by 0.75 percentage points, the largest increase since 1994. The Fed also raised interest rates twice before that. Higher interest rates mean less money flows into the economy. This would curb inflation, but it could also hamper economic growth.
The former head of the New York Federal Reserve, among others, argues that a recession is now inevitable. Deutsche Bank CEO Christian Swing said at a conference that he estimates the chance of a recession at 50 percent, due in part to higher interest rates.
The Federal Reserve is now particularly interested in lowering hyperinflation. In May, prices in the US rose at their fastest rate in more than 40 years. Powell admitted that it came as a surprise to him that everyday life became more expensive for Americans so quickly. “And there may be more surprises in the future,” he added.
Powell received criticism from Republican senators in particular, who blame him for the fact that the Federal Reserve cannot protect Americans from losing purchasing power. “The Federal Reserve has failed the American people,” said Alabama senator Richard Shelby.
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