FEBRUARY 27, 2023 – FED BOARD OF GOVERNORS’ MEETING
The Fed’s Board of Governors met a week ago to discuss monetary policy. One message that was sent was that a recession is not a certainty. They point to four reasons the current economic situation differs from pre-recessionary periods in the past. They are the “unprecedented” disruption to supply chains since the pandemic; the decline in the number of people working or looking for work; the Fed, now, has more credibility as an inflation-fighter than during the 1970’s; and the Fed has acted vigorously to fight inflation with eight rate hikes in the past year.
Susan Collins, president of the Boston Fed said she hopes “there is a path to restoring price stability without a significant downturn.” Though, she is “well-aware of the many risks and uncertainties” in the economy, and the Fed will have to keep rates rising for an extended time. as inflation continues its hold. The Fed has achieved soft landings in the past, but inflation wasn’t as high as the 9.1 percent seen last year.
It is anticipated the Fed will be raising rates up to the range of 5.2 to 5.5 percent and they will stay higher longer to tame inflation, making a recession more likely. With rates that high, economists predict unemployment will rise to 5.1 percent and inflation will fall to 2.9 percent. But that is not the Fed’s targeted 2 percent, implying rates may have to go up even more.