A recession in the US is possible, due to interest rate hikes by the Federal Reserve over the past year. This was stated today by the president of the Chicago Fed, Austan Goolsbee, inviting the central bank to act with prudence in its path of tightening monetary policy.
Goolsbee was answering a question about a Fed staff forecast that stress in the banking sector could lead to a recession this year. “The data proves it, and we’ve raised rates by nearly 500 basis points in one year,” he added.
The economy is showing signs of weakening due to higher interest rates and inflationary pressures which, according to some metrics, continue to slow. The Commerce Department said today that retail sales fell more-than-expected in March.
Most Fed members continue to stress the need to focus on meeting the 2% inflation target, with the exceptions of Goolsbee and San Francisco Fed Chair Mary Daly.
Governor Christopher Waller backed the possibility of another 0.25% rate hike on May 2-3. Atlanta Fed Chairman Raphael Bostic also told Reuters that the Fed could “go on target and stop” with another rate hike.
Goolsbee said economic data ahead of the May meeting will influence his view on whether further tightening is appropriate, particularly on credit conditions following the collapse of two regional banks. However, he expressed caution: “We still have several weeks before the FOMC meeting, so I don’t want to specify what it will mean for my position, but keep in mind that we have already increased a lot. It takes time for this to be reflected in the system… let’s not be too aggressive.”