US recession possible, Fed chairman says amid inflation pessimism
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The chairman of the US Federal Reserve says the country might still be heading toward a recession as he warns of a looming inflation ceiling.
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Federal Reserve Chairman Jerome Powell testifies during a Senate Banking Committee hearing, on June 22, 2023, on Capitol Hill in Washington (AP)
A recession in the United States is not out of the picture, and though it is not certain, it is still possible as the Federal Reserve's target of taming inflating and reducing it to 2% per year by hiking interest rates might not be achieved until 2025, Fed chairman Jerome Powell said Wednesday.
"A recession, to me, is not the most likely case but it's certainly possible," Powell said at a panel discussion hosted by the European Central Bank. "I don't see us getting to 2% this year or next year, I see us getting there the year after... 2025."
In the meantime, Powell said, the United States was due for more budget constraints and more interest rate hikes, though it could slow its pace when it comes to interest rate hikes whenever it deems it to be fit.
"There is a strong majority for two more rate hikes in the dot plot," he said, referring to an internal measure used by the Fed to determine the appropriate monetary tightening and easing. "I wouldn't take moving at consecutive meetings off the table. We will be restrictive as long as we need to be."
The Federal Reserve is set to meet on July 26 to discuss interest rate hikes, while many economists predict that the body will be hiking interest rates by another 0.25, bringing them to an all-time high of 5.5% in a bid to cool red-hot inflation.
Read more: US debt hits new historic high
The Consumer Price Index, which is the most comprehensive measure of inflation in the United States, increased by 4% in the year leading up to May, marking its slowest rate of growth in over two years. In comparison, the Personal Consumption Expenditures Index, the inflation measure preferred by the Federal Reserve, rose by 4.4% in the year up to April. Despite these variations, both indices remain significantly higher than the Fed's target of 2% annual inflation.
Read next: 91% of manufacturers will spike prices in second half of 2023
The central bank has raised interest rates by 5% since the end of the Covid-19 pandemic in March 2022.
The Fed has a mandate of ensuring "maximum employment" through an unemployment rate of 4% or below and keeping inflation manageable. The pandemic measures and the trillions of dollars of relief and other spending by the government have triggered runaway inflation since mid-2021.
The Government Accountability Office (GAO) issued in early June a warning regarding the escalating debt of the United States Federal Government, cautioning that it is on an unsustainable path if its current rate of expansion continues.
The report stated that the federal government is facing a challenging fiscal future in the long term. By the end of the fiscal year 2022, the debt held by the public had reached approximately 97% of the gross domestic product (GDP).
The debt held by the public is projected to outpace the growth of the US economy, with estimates indicating that it will reach a historical high of 106% of GDP within the next decade, according to the GAO. Furthermore, the report emphasized that this trajectory will lead to an increasingly accelerated accumulation of debt.
Moreover, in a report by The Hill in late May, it was said that an average US household now carries $10,000 in credit card debt, raising the US credit card balance to $1 trillion.
A new survey conducted by the United States' central bank shows that the country's record high inflation has eroded the sense of financial security among US households. The Covid-19 pandemic reached its peak as a global pandemic in 2020, forcing the government to limit people's movement in cities and countries around the globe.
That said, movement restrictions were gradually removed and spending picked up, and saving slowed down. Simultaneously, the US Federal Reserve commenced an unprecedented campaign of interest rate hikes, amid a soaring inflation rate.
Credit card debt rose by $86 billion during the fourth quarter of 2022, indicating the largest increase on record. Overall, one-third of US households consider inflation as their current financial challenge, demonstrating an increase of more than 400% from 2016.
