The Federal Reserve expects a recession in the United States from the fourth quarter

Federal Reserve economists have put a date on the recession that everyone has been waiting for in the United States for a year, but that never ends. Now, its economists expect it to occur in the last quarter of this year and the first of next, according to the minutes of the last meeting of the Federal Reserve published on Wednesday.

"The economic forecasts prepared by the experts for the May meeting of the FOMC [the open market committee, which decides monetary policy] continued to assume that the effects of the expected further tightening of bank credit conditions, amid already tight financial conditions, would lead to a mild recession from the end of this year, followed by a recovery at a moderate pace", say the minutes, which go a little further: "A slowdown in real GDP was expected in the following two quarters, before registering a modest decline both in the fourth quarter of this year and in the first quarter of next ", they add.

At the March meeting, Federal Reserve economists had already put on record in the minutes that they expected a mild recession in the United States by the end of the year. Its chairman, Jerome Powell, said that a mild recession should be understood as one "in which the increase in unemployment is less than has been usual in recessions of the modern era."

In any case, Powell made it clear that the forecast of the technicians does not have to be shared by the members of the monetary policy committee. The president of the central bank himself still trusts in the possibility of a soft landing, that is, controlling inflation without falling into recession.

What the minutes do not shed much light on is the next move in interest rates. The central bank met the expectations of analysts and investors at the last meeting. The Fed raised rates to 5%-5.25%, but no longer took further hikes for granted, as it had done until then: "The committee will closely monitor the information it receives and assess its implications for monetary policy," it said in the statement after the meeting.

Although everything seemed to point to a pause, Jerome Powell made it clear in the subsequent press conference that it was too early to end the rate hikes and that decisions will be made "meeting by meeting". "The decision on the pause has not been made today," he said. "We are going to address that issue at the June meeting," he insisted then.

That same message is conveyed by the minutes, which show a certain division and reflect that "the convenience of increasing the target range [of rates] after this meeting is now less certain." The hawks: "Some participants commented that, based on their expectations that progress in returning inflation to 2% might remain unacceptably slow, further monetary policy firmness would probably be warranted at future meetings." The pigeons: "Several participants noted that if the economy was evolving in line with its current outlook, further monetary policy firmness might not be necessary after this meeting." Conclusion: we'll see.

The next meeting

This Wednesday, one of the members of the monetary policy committee, Governor Christopher Waller, has indicated that it is too early to know what will happen at the next meeting of the Federal Reserve on interest rates, which is held on June 13 and 14. In one intervention, he was in favour of maintaining flexibility until then. In any case, even if there is a pause, that does not mean that the rates have reached the ceiling, he explained.

"I'm not in favor of stopping raising rates unless we have clear evidence that inflation is approaching our 2% target," Waller said at an event at the University of California, Santa Barbara. "But whether or not we should go up at the June meeting will depend on how the data comes in over the next three weeks." By the time a decision is made, the inflation data for May and many other indicators will be known. The minutes of the last meeting published on Wednesday do not dispel doubts.

"We still have some important data releases ahead of us over the next three weeks and I will also learn more about developments in credit conditions, both of which will inform me of the best course of action," Waller said. "Between now and then, we must maintain flexibility on the best decision to make in June."

In a recent intervention, Powell insisted that the banking storm may translate into lower rate hikes: "Although financial stability instruments have helped calm conditions in the banking sector, developments in that sector, on the other hand, are contributing to tightening credit conditions and are likely to weigh on economic growth. hiring and inflation. As a result, our policy rate may not have to rise as much to achieve our targets. Of course, the extent of this is very uncertain," he said at a conference he was participating in alongside his predecessor Ben Bernanke.

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