Federal Reserve Chairman Jerome Powell said Wednesday he does not believe the U.S. economy is in a recession, despite growing fears that the country’s central bank could trigger a downturn with its war on inflation.
“I do not think the U.S. is currently in a recession, and the reason is there are too many areas of the economy that are performing too well,” Powell said at the Fed’s post-meeting press conference in Washington.
“This is a very strong labor market. … It doesn’t make sense that the economy would be in a recession with this kind of thing happening.”
His comments came after policymakers voted unanimously to hike interest rates by 75 basis points for the second consecutive month, putting the federal funds target range between 2.25% to 2.50%, the highest since December 2019. The efforts to bring inflation under control carry risks, and a growing number of economists believe it will be difficult for the Fed to avoid a recession.
Powell acknowledged the path to a soft landing, the sweet spot between cooling consumer demand without crushing economic growth, is challenging and likely to get more challenging in the coming months. But he maintained that the strength of the labor market indicates the economy is not in a recession, citing the 3.6% unemployment rate and the 2.7 million jobs added in the first half of the year.
“I don’t think the U.S. economy is in a recession now,” he said. “And I’ve explained why that’s the case, because you do see a very strong labor market.”
The Fed meeting precedes the release of the second-quarter gross domestic product report, which could show that economic activity declined in the period from April to June. Economic output already fell over the first three months of the year, meaning that a decline in the second quarter could technically signify a recession.
However, Powell issued a word of caution on the data, which he said he has yet to see, ahead of its release Thursday morning.
“Generally, the GDP numbers do have a tendency to be revised pretty significantly,” he said. “You tend to take first GDP reports with a grain of salt.”