Michelle Bowman, one of the governors of the US Federal Reserve (Fed) at the institution’s headquarters in Washington, October 4, 2019 (AFP / Eric BARADAT)
The US can escape recession in 2023 while seeing inflation slow down permanently, Michelle Bowman, one of the governors of the US central bank (Fed), estimated on Tuesday.
The US labor market remains very solid despite the rate hikes the Fed has made to fight inflation.
This represents a “sign of hope that we can succeed in reducing inflation without a major economic slowdown,” Ms. Bowman in a speech to the Florida Bankers Association in Miami.
Unemployment even fell in December to 3.5%.
In the coming months, the central bank should continue to raise interest rates because “inflation is way too high”, Ms Bowman pointed out.
And “it is likely” that it will weigh on employment, she warned, because “the slowdown in the economy will probably mean that job creation will also slow down”.
“There are costs and risks to tightening (monetary) policy to reduce inflation, but I estimate that the costs and risks of allowing inflation to persist are much greater,” she said.
As for the pace of rate hikes and how far rates should go, that will depend on “the data and (the) implications for the outlook for inflation and economic activity,” she said.
“I expect that once we reach a sufficiently restrictive rate, it will remain at that level for some time to restore price stability,” the governor added.
Inflation fell in November to 5.5% over the year from 6.1% in October, according to the PCE index, which the Fed favors and which it wants to reduce to 2%.
Another measure, the benchmark CPI, also showed a sharp slowdown in November to 7.1% year-on-year. Data for December will be published on Thursday.
At its last meeting in mid-December, the Fed had raised its key interest rate by half a point, bringing it to a range of 4.25% to 4.50%, the highest level since 2007. The next meeting is scheduled for January 31 and 1 . february .