<mediadc-video-embed data-state="{"cms.site.owner":{"_ref":"00000161-3486-d333-a9e9-76c6fbf30000","_type":"00000161-3461-dd66-ab67-fd6b93390000"},"cms.content.publishDate":1654270366419,"cms.content.publishUser":{"_ref":"00000168-ed7d-d9d9-a9ec-ff7daffb0002","_type":"00000161-3461-dd66-ab67-fd6b933a0007"},"cms.content.updateDate":1654270366419,"cms.content.updateUser":{"_ref":"00000168-ed7d-d9d9-a9ec-ff7daffb0002","_type":"00000161-3461-dd66-ab67-fd6b933a0007"},"rawHtml":"
var _bp = _bp||[]; _bp.push({ "div": "Brid_54270261", "obj": {"id":"27789","width":"16","height":"9","video":"1024458"} }); ","_id":"00000181-2a32-df81-a381-6a368bd70002","_type":"2f5a8339-a89a-3738-9cd2-3ddf0c8da574"}”>Video EmbedThe American Bankers Association is forecasting that the Federal Reserve will be able to tamp down the country’s blistering inflation while avoiding a recession this year.
The ABA’s Economic Advisory Committee announced its updated economic forecast on Friday. The group of economists predicts 1.6% inflation-adjusted growth this year and 1.5% growth in 2023. While still well below last year’s red-hot 5.5% gains, the prediction keeps U.S. growth in the black.
The Fed is working to drive down inflation by hiking interest rates. Consumer prices increased 8.3% in the 12 months ending in April, clocking in at levels not seen since the 1980s. The Fed hiked its interest rate target by a quarter percentage point in March, the first time doing so in years.
The central bank then jacked up rates by a half percentage point last month, a move that is akin to two simultaneous rate hikes and an aggressive tack taken for the first time in more than two decades. Fed officials have signaled that more half-point hikes will be in store this month and in July.
CBO PROJECTS FED WILL PULL OFF A SOFT LANDING AND AVOID A RECESSION
The action is designed to slow spending and drive down prices, but the trade-off for dampening prices is that it also slows the economy and can result in the job market taking a hit.
Fed Chairman Jerome Powell is trying to pull off a so-called “soft landing,” which is when the central bank is able to drive down inflation while preventing a recession and a surge in unemployment.
Many economists define a recession as two consecutive quarters of negative GDP growth, so Friday’s ABA forecast is a welcome prediction as it shows positive GDP growth this year. This year’s quarter 1 real GDP growth was negative 1.5%, but the ABA predicts 2.7% growth this quarter and in the third quarter.
“Broadly speaking, the best way to think about this is, I think, a successful soft landing,” said Richard DeKaser, the committee’s chairman and the executive vice president and chief corporate economist at Wells Fargo, during a Friday call.
The ABA is also forecasting that inflation will remain well above the Fed’s 2% target this year. It expects Consumer Price Index inflation to fall to a 6.3% annual rate in quarter 4 of this year. It predicts that headline figure will decline to 2.4% by the final quarter of 2023.
Despite the projection of a soft landing this year, the ABA economists emphasized the high degree of uncertainty surrounding the country’s economic recovery and assigned a 40% chance of the economy entering a recession in 2023.
“It looks like the Federal Reserve will successfully bring inflation down to more tolerable levels in the foreseeable future,” said DeKaser. “However, there are substantial risks to this outlook.”
DeKaser noted that the group’s GDP forecast, while still positive for this year, has been significantly revised down from January when they predicted 3.3%, a cut of more than 50%. He cited developments regarding the war in Ukraine, supply chain constraints, and other factors in driving down that forecast.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
The ABA isn’t alone in its prediction of Powell and the Fed managing a soft landing. In a recent report, the Congressional Budget Office also forecast continued economic expansion this year. The nonpartisan budget office indicated that U.S. real GDP would increase by 3.1% this year.
Goldman Sachs predicts a 35% chance of a recession in the next two years, while Wells Fargo’s economic model projects a 30% chance of a recession occurring in the next six months alone.
