Federal Reserve Chairman Jerome Powell said on Wednesday he does not believe the U.S. economy is in recession as the central bank raised rates further to fight inflation.
“I don’t think the United States is currently in a recession and the reason for that is that there are too many sectors of the economy that are doing too well,” Powell said at a news conference afterward. of the Fed’s decision to raise rates by 0.75 percentage point for a second consecutive time. “It’s a very strong job market…it doesn’t make sense for the economy to be in a recession with this kind of thing going on.”
Wednesday’s rate hike marks the latest move in the Fed’s efforts to ease the strongest inflationary pressures in about four decades. Markets surged after news of the increase, with the Dow Jones Industrial Average adding more than 450 points and the tech-heavy Nasdaq Composite up 4%.
Investors fear the Fed’s hike campaign could tip the economy into a recession, but Powell also said the central bank will be watching economic data closely to determine future moves. While another big hike may be needed, he added that there will come a time when the Fed will have to slow the pace of increases.
Investors will get another important data point for the recession debate this week.
The preliminary reading of gross domestic product for the second quarter is due on Thursday, with economists polled by Dow Jones expecting the economy to have barely expanded – after contracting 1.6% in the first quarter.
Many on Wall Street refer to two consecutive negative quarters as a recession, but the official definition takes into account more factors than just GDP.
Powell noted on Wednesday that he had yet to see the GDP report, but was waiting to see what it said.
“You tend to take early GDP reports with a grain of salt,” he said.