In a big reversal from just months ago, Federal Reserve staff no longer expect a recession, Fed Chairman Jerome Powell said Wednesday.
Powell's comments came during a press conference following the Fed's announcement that it is hiking its interest rate target and bolster the notion that the central bank can pull off an elusive “soft landing” — that is, bringing down inflation without causing a recession.
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“The staff now has a noticeable slowdown in growth starting later this year in the forecast, but given the resilience of the economy recently, they are no longer forecasting a recession,” Powell told reporters.
He did note that Fed staff produce their own forecasts that are independent of the Federal Open Market Committee, which is the group of Fed officials who decide where to set the Fed's target interest rate. Powell said he isn’t quite ready to use the phrase “optimism” yet but noted that there is a “pathway” to a soft landing.
“We’ve seen so far the beginnings of disinflation without any real cost to the labor market and that’s a really good thing,” Powell said.
The news signals a notable reversal from when staff predicted a mild recession in a presentation to central bank officials at the FOMC’s March meeting. The revelation was significant at the time as it marked the first time that Fed staff publicly acknowledged that a recession was likely.
Recent economic news has buoyed the optimism of economists and investors, particularly reports for June that showed the rate of inflation has been meaningfully falling.
The June consumer price index report showed inflation fell to a 3% annual rate. That is down from as high as more than 9% last summer when prices were being pushed higher on the supply side by exploding energy prices (largely from Russia’s invasion of Ukraine) and the demand side by low interest rates and excess government stimulus.
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While Powell left the door open to more rate hikes during his news conference, most investors expect this most recent rate revision, which brought the Fed’s target range to 5.25% to 5.50%, to be the last hike of its tightening cycle.
About three-fourths of investors think the Fed will hold rates steady at its next meeting in September, according to CME Group’s FedWatch tool, which calculates the probability using futures contract prices for rates in the short-term market targeted by the Fed.