US Fed Links Recession Fear & Inflation Spike to Trump Tariff
US Federal Reserve Chairman Jerome Powell (Image credit Federal Reserve)
US Fed Holds Rate but Lowers Expectations from Economy
By S Jha
New Delhi, March 20: The possibilities of recession have moved up in two months, said the US Federal Reserve while announcing a hold on the benchmark policy rates. US Federal Reserve Chairman Jerome Powell attributed to rise in inflation to tariffs announced by President Donald Trump.
“If you go back two months, people were saying that the likelihood of a recession was extremely low… so (it) has moved up, but it’s not high,” Powell said in a media briefing.
Powell underlined “high uncertainty” about the potential impact of the Trump administration’s trade and other economic policies. The US Fed announced to hold the benchmark policy rates at 4.25-4.50%.
But the Fed Chair trimmed the growth outlook of the US economy. He also said that unemployment in the US may shoot up in coming months.
“Uncertainty around the economic outlook has increased. The committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the committee’s goals,” said Powell.
The US Fed has spoken on several occasions that inflation management remains its principal focus. Trump this week claimed that prices have cooled due to the action of his administration.
“It is going to be very difficult to have a precise assessment of how much of inflation is coming from tariffs. You may have seen that goods inflation moved up pretty significantly in the first two months of the year,” said Powell in his press conference.
Trump Presidency was inaugurated on March 20. Powell’s “two months” timeframe coincides with Trump inauguration.
He said that actual assessment of the impact of tariffs on inflation remains a challenge. “Trying to track that back to actual tariff increases, given what was tariffed and what was not… (it remains) very, very challenging,” said Powell.
But he stated that “some of it, the answer is clearly some of it, a good part of it, is coming from tariffs”. “But we’ll be working, and so will other forecasters to try to find the best possible way to separate non-tariff inflation from tariff inflation,” he added.
On the prospects of the US economy slipping into recession, Powell said that “there’s always an unconditional probability, possibility of a recession. It might be broadly in the range of one in four at any time. If you look back through the years, it could be within 12 months a one in four chance of a recession.”
“So, the question is whether that, whether this current situation, those possibilities are elevated. I will say this, we don’t make such a forecast. If you look at outside forecasts, forecasters have generally raised, a number of them have raised their possibility of a recession somewhat,” added Powell.
But the US Fed Chair also stressed that the chances of recession remain “still at relatively moderate levels, you know still in the region of the traditional because they were extremely low”.
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