U.S. Federal Reserve Chairman Jerome Powell revealed on Wednesday that a recession in the United States following the decision to raise interest rates is not the most likely outcome, but it is "definitely possible." He stated that "further interest rate hikes are likely to be implemented in upcoming bank meetings," adding that he does not rule out increasing borrowing costs at the policy-setting meeting scheduled for the end of July.
Powell noted at a European Central Bank conference, "We have come a long way" regarding interest rate increases, indicating that the decision to pause this month aimed to absorb the impact of the rate-hiking cycle on the economy. He continued by saying that future monetary policy actions will be driven by economic performance, emphasizing that "the only thing we decided was not to raise interest rates at the June meeting."
He added, "I would not rule out taking such an action at subsequent meetings at all," stating, "It is clear that the committee believes there is more work to be done, and that further interest rate increases are likely to be appropriate" sometime during the year.
Powell mentioned that the rapid pace of interest rate increases was appropriate when inflation was extremely high and the monetary policy stance was not aligned with it, but the policy is now closer to where it should be. He also noted that the U.S. economy has remained strong so far in the face of Federal Reserve actions, and the labor market has performed surprisingly well.
He stated, "It is positive that we managed to raise interest rates by 500 basis points while expecting to move forward, and we still have a very strong labor market." Powell did not rule out the possibility that the bank's actions, aimed at bringing inflation back to two percent, could lead to some economic troubles. He said, "The least likely scenario is that we find our way to a better balance without experiencing a sharp downturn." He added that there is also a "significant chance of an economic contraction, but it is not the most likely case."
