Fed’s Harker Raises Anti-Inflation Rhetoric by Admitting US Economy Needs to Slow

WASHINGTON, October 21 (Sputnik) - The US central bank needs to slow the economy to curb inflation hovering near 40-year highs, Federal Reserve Bank of Philadelphia President Patrick Harker said on Thursday, heightening the anti-inflation rhetoric by suggesting it was actually open to a recession.

"The Fed is actively attempting to slow the economy in order to reduce high inflation," Harker said in a livestreamed discussion on the US economy, adding: "The Federal Reserve has made disappointing progress in lowering inflation."

Economists have accused the Fed of being slow to the inflation-fight and saying its move to overcompensate for its earlier inaction with aggressive rate hikes will trigger a recession. Most of the central bank’s senior officials refute that assertion.

Due to the persistent criticism, most Fed speakers also have refused to openly say that the United States needs to have slower or even negative growth, in order to curb inflation stubbornly hovering around four-decade highs of more than 8% a year.

"The R-word remains a dirty one across markets and each time a Fed speaker suggests that even remotely, risk assets tend to suffer," John Kilduff, partner at the New York-based hedge fund Again Capital, said. "Harker was making little attempts to disguise his thoughts about a recession today, by outrightly saying the Fed needs to slow the economy."

Inflation, as measured by the Consumer Price Index (CPI) stood at 8.2% for the year to September, not too far from the 40-year peak of 9.1% during the 12 months to June.

The Fed’s target for inflation is a mere 2% a year and it has said it will not back off on interest rate hikes until it achieves its aim. Since March, the US central bank has raised rates by 300 basis points from an original base of just 25. The Fed intends to add another 125 basis points to rates before the year-end, with economists expecting further interest rate hikes in 2023.

On Tuesday, Fitch Ratings said in a report that the US economy could land in 1990-style of a mild recession by spring next year as unyielding inflation and the Fed’s response of the interest rate hikes come to a head.

Fitch slashed its US growth forecasts for 2023 and 2024, citing one of the most aggressive inflation-fighting campaigns in Fed history. US Gross Domestic Product is forecast to grow by 0.5% next year, versus its June forecast of 1.5%, Fitch said.

High inflation will "prove too much of a drain" on household income next year and shrink consumer spending to the point it causes a downturn by the second quarter, Fitch added.

The Fitch forecast came on the heels of projections by Bloomberg economists on Monday that a US recession is effectively certain over the next year.

Investors, economists and business leaders have warned for a while that the US economy was on the verge of a downturn - just two-and-a-half years after the last recession that broke out with the coronavirus pandemic measures in mid-2020.