Federal Reserve Chairman Jerome Powell said that the economy doesn’t appear to be in a recession, weighing into a controversial topic.
Speaking Wednesday after the Federal Open Market Committee decided to conduct another aggressive interest rate hike, Powell was asked about the state of the U.S. economy. He spoke a day before the preliminary estimate for gross domestic product growth in the second quarter is set to be released.
“I do not think the U.S. is currently in a recession,” Powell told reporters on Wednesday. “And the reason is there are just too many areas of the economy that are performing too well.”
The White House in recent days has maintained that the economy is not in a recession and wouldn’t be even if Thursday’s GDP report shows a second consecutive quarter of contraction, a situation commonly viewed as the definition of a recession. Republicans have accused the Biden team of redefining “recession” for political purposes.
Powell highlighted strength in the labor market as a major reason he doesn’t think the country is in a recession. He said that while it is evident that growth is slowing, the jobs market has remained robust.
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The economy beat expectations and added 372,000 jobs in June. The unemployment rate also remained at 3.6% in June, matching the low level it was at right before the coronavirus pandemic struck.
“That’s a remarkably strong level for this state of affairs,” Powell said of the increasing number of jobs. “All of the wage measures we track are running very strong, so this is a very strong labor market.”
Powell noted that with 2.7 million people having been hired in the first half of the year, “It doesn’t make sense that the economy would be in recession with this kind of thing happening.”
While the consensus is that Thursday’s GDP report will show slight growth, other metrics have been flashing red. The Atlanta Fed’s “GDP Now” tracker predicted on Wednesday that gross domestic product growth will decline by 1.6 for the second straight quarter.
Still, the quarterly GDP estimates are revised several times before the final number for growth or loss is formalized.
“You tend to take first GDP reports I think with a grain of salt,” Powell said of the upcoming report.
During his press conference, Powell was also reluctant to say how a recession is defined.
He pointed out that the Fed doesn’t make a judgment on whether the economy is in a recession and seemed to hint at the broad definition used by the National Bureau of Economic Research, which is a private group that is seen as an authority on the matter.
“We don’t say there is now a recession or that kind of thing, so that wouldn’t be something we would do,” he said, adding that the Fed will still look at the GDP data very closely and draw “whatever implications” it can.
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The NBER defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”
Powell appeared to paraphrase that definition on Wednesday and said it doesn’t appear to him that the current economic conditions meet those criteria.
