Jay Powell warns of a US recession

• Jay Powell warns that a US recession is ‘certainly a possibility.
• Fed chair says external factors including the Ukraine conflict and China’s policy could complicate the outlook.
• Inflation at 8.6%, the highest level in four decades, has become more difficult for the central bank to control.

Jay Powell has stated that a US recession is “certainly a possibility” and cautioned that the Federal Reserve’s ability to avert a slump depended largely on external circumstances.

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In testimony before the Senate Banking Committee on Wednesday, the Fed chair recognized that it had become more difficult for the central bank to curb inflation while maintaining a robust labour market.

However, he admitted that external variables, including the Ukraine conflict and China’s Covid-19 policy, could further complicate the economic outlook.

Powell responded to a question regarding the prospect that the Fed’s intentions to raise interest rates this year could lead to a recession by stating, “It’s not our intended outcome at all, but it’s certainly a possibility,”

He said that it was “now more difficult” for the central bank to accomplish its goals of 2% inflation and a robust labour market as a result of “events in the world over the past several months.”

“The question of whether we are able to accomplish that is going to depend to some extent on factors that we don’t control,” he said, referring to increasing commodity prices resulting from Russia’s invasion of Ukraine and jammed supply chains caused by China’s lockdowns.

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Powell was repeatedly questioned by lawmakers over the burden caused by the Fed’s recent actions to combat inflation, which is currently at 8.6%, the highest level in four decades.