Jerome Powell, chair of the Federal Reserve, told the House Financial Services Committee on Wednesday in the Fed’s semi-annual monetary policy report that he does believe there is evidence for a recession.
Powell stressed in an exchange with Democratic Rep. Al Green of Texas that the U.S. economy has seen above-trend growth in the past two quarters, totaling 3.3% year-over-year in the fourth quarter of 2023 and 4.9% in the third quarter. The remarks from Powell come as investors look to decipher when the Fed will cut its benchmark federal funds rate, which is currently in a range of 5.25% and 5.50%, a 23-year high. (RELATED: Local Restaurants Can’t Keep Up With Minimum Wage Hikes, Inflation)
“Are you now at the point where you believe that there will not be a recession?” Green asked Powell at the meeting. “There was much talk about recession and many people worried that we would find ourselves having to negotiate our way out of a recession. What is your position currently on a recession?”
“What we are seeing this year is continued solid growth,” Powell responded. “My expectation and that of other forecasters and of my colleagues is that we will see continued growth at a solid pace. There’s no evidence, there is no reason to think that the U.S. economy is in some kind of short-term risk of falling into recession.”
While the U.S. economy, by many metrics, has managed to avoid a recession, inflation remains high, coming in at 3.1% year-over-year in January, bucking broad expectations of 2.9% inflation. Inflation has, so far, come down from its recent peak of 9.1% in June 2022 but has failed to decline below 3% since.
Following the unexpectedly high inflation report, many investors switched their projections to a “no landing” scenario, where inflation and growth remain high, as opposed to a soft landing, where inflation would moderate toward 2% while growth remained strong. The above-expectations report led to the biggest single-day drop in the Dow Jones Industrial Average in nearly a year.
“Having said that, though, there’s always a meaningful possibility that an economy will fall into recession. I don’t think that that possibility is elevated at the current time,” Powell said at the meeting.
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