Story Published at: July 28, 2022 at 01:34PM
Powell keeps it sunny
The Federal Reserve is continuing its aggressive campaign to cool inflation, even as the economy begins to slow. The U.S. central bank raised interest rates yesterday — this time by three-quarters of a percentage point — for the fourth time this year. Investors cheered the move, with the S&P 500 rising nearly 3 percent by the end of the day. Futures markets suggest stocks will open slightly lower today. The Fed’s benchmark short-term interest rate is now as high as 2.5 percent, up from near-zero in March.
But the big question on many minds is whether the economy will slow too much. During a news conference yesterday, the Fed chair, Jerome Powell, was asked in every way possible whether he thought the economy was in, or headed toward, a recession. And every time, he answered: No, not at all.
The Fed is more optimistic about a soft landing than Wall Street. Powell said a recession wasn’t in his outlook, even though much of Wall Street sees one coming either by the end of this year or early next, reports The Times’s Jeanna Smialek. Instead, Powell said the labor market indicated that the economy, while slowing, remained strong. He added that the Fed planned to continue raising rates until the end of 2023.
In part, the Fed can remain optimistic because the data about the economy is mixed. Consumer confidence is plunging, while corporate profits continue to increase, and the unemployment rate remains low. Peter Coy, our colleague from Times Opinion who writes a newsletter about business and economics, noted that G.D.P. and gross domestic income — another measure of economic activity — should track relatively closely but have recently diverged. The gap between the two measures is at its widest since 1947.
The Fed, though, is probably not a reliable recession messenger. The central bank has said it can bring down inflation without sending the economy backward. Many question that. “A big part of leadership is to project confidence,” Michael Arone, a strategist at State Street Global Advisors, told DealBook. “I have always taken Fed-speak with a bit of salt, but when it comes to a recession, as I told my team this morning, a ton of salt.”
The Bureau of Economic Analysis reported this morning that the G.D.P. fell in the second quarter, for the second quarter in a row, raising fears, despite the Fed’s assessment, that a recession may have already started in the U.S. Follow The Times’s live coverage of reactions to the G.D.P. numbers.