A former chief economist at the International Monetary Fund says the U.S. economy is likely to slip into recession next year.
“A recession at the end of the year or early next year is better money,” Maurice Obstfeld, an economist professor at the University of California, Berkeley and former chief economist at the International Monetary Fund, said in an interview with MarketWatch. Told. A bystander at the Federal Reserve’s summer retreat in Jackson Hole.
Fed Chairman Jerome Powell on Friday said the U.S. was likely to experience below-trend growth as the central bank raised benchmark interest rates to keep inflation in check, but avoided using the word recession. rice field.
look: Fed Chair Powell says lower inflation will hurt households and businesses in Jackson Hole speech
Powell began to argue that households would experience “pain” from the tightening but did not mention the potential for “blood, sweat and tears,” Obstfeld said.
Consumer inflation is hovering at 8.5% annually, the highest in 40 years.
At the same time, the US labor market is strong, with the unemployment rate at 3.5% and wages rising at more than 5% annually.
Economists stress that the Fed needs to cool the labor market to keep inflation down.
But Obstfeld said it won’t be easy.
“There is a lot of momentum in the labor market.
Obstfeld said the Fed’s benchmark rate will likely need to rise to a range of 4.5% to 5%.
Currently, the Fed’s benchmark rates range from 2.25% to 2.5%.
In short, there is a risk that the Fed will have to put the brakes on the economy to contain inflation.
Obstfeld said it was doubtful the unemployment rate would only rise to 4% if this happened.
The recession could be as shallow as the economy after the September 11, 2001 attacks on the World Trade Center.
The recession that followed that attack turned out to be “not so bad,” but it took a long time for the labor market to recover, he said.
Taking a step back, Obstfeld emphasized that the economic outlook is very volatile and it’s hard to know how events will play out.
Obstfeld said the divergence of results itself is straining business and consumer confidence.