In a recent interview with CBS 60 Minutes, Federal Reserve Chair Jerome Powell downplayed the possibility of an impending recession, attributing the current economic conditions to distortions caused by the pandemic. The interview was broadcast on Sunday.
What Happened: Powell stated, “I would say there’s always a possibility of a recession at any given time. But I wouldn’t say that that possibility of a recession isn’t all elevated right now.”
Powell pointed to pandemic-related disruptions in demand and supply as the cause of the unusual economic conditions. He used the automobile industry as an example, where a surge in demand and a concurrent shortage of semiconductors led to inflation. However, as the semiconductor supply recovered, inflation significantly moderated.
Despite these distortions, Powell noted that the economy grew by 3.1% last year, with the fourth quarter growth rate even higher. He also highlighted the healthy state of the labor market, with 165,000 new jobs created per month over the last quarter.
When asked about the long-term impact of the pandemic on the economy, Powell stated that it’s too early to tell, but acknowledged that the shift to remote work is likely to be a lasting change.
Why It Matters: In the CBS interview, Powell hinted at the possibility of interest rate cuts in 2024, citing a strong economy and decreasing inflation. He emphasized the need for more positive economic data before deciding on interest rates.
Powell’s comments come in the wake of a series of decisions by the Federal Reserve. In January 2024, the Federal Reserve maintained interest rates between 5.25% and 5.5% during its first meeting of the year, marking the fourth consecutive Federal Open Market Committee meeting where borrowing costs were kept steady.
Later that month, Powell cooled expectations for imminent rate cuts, stating that it would not be appropriate to reduce the target range until there was greater confidence that inflation was moving sustainably toward 2 percent.
Photo via Brookings Institution on Flickr