By Victoria Cavaliere and Craig Torres
White House economic adviser Brian Deese stopped short of ruling out a US recession as the Federal Reserve combats inflation, saying the central bank needs space to do its job.
Deese, the director of the National Economic Council, said that approach reflects President Joe Biden’s pledge to make reining in the biggest consumer price increases in four decades his “top priority.”
“We need to give the Fed the space and the independence to do its job, which is to get inflation under control,” Deese said on CNN’s “State of the Union” on Sunday. “There are always risks,” he said when asked whether the US is headed for a recession.
Consumers are experiencing the highest inflation in decades brought on by expansionary fiscal and monetary policy combined with supply shortages and rising food and energy costs resulting from Russia’s invasion of Ukraine. A price measure tied to consumption closely tracked by the Fed rose 6.6 per cent for the 12 months ending March, while another measure, the consumer price index, rose 8.3 per cent for the year ending April, among the highest readings in decades.
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US central bankers say that restoring prices back to their 2 per cent inflation target is their top priority. They raised the benchmark lending rate by a half percentage point earlier this month after a quarter-point increase in March, and Chair Jerome Powell said the policy committee plans to keep raising in half-point steps over the next couple of meetings. Powell also said there was a “good chance” the Fed could lower inflation back toward its 2 per cent goal without a “severe” downturn or “materially high” unemployment.
Americans are increasingly pessimistic about the economy, the stock market and inflation, according to a CBS News poll published Sunday, which found that the share of people who say the economy is bad rose to 69 per cent this month, compared with 46 per cent in April 2021 and 64 per cent last November. The May 18-20 poll has a margin of error of plus or minus 2.5 percentage points.
Deese said the US economy is in transition to more “stable and resilient growth.”
“While there are absolutely risks with inflation first and foremost, this is what is most important: the United States is better positioned than any other major economy to bring inflation down and address these challenges without giving up all the economic gains that we’ve made and that is because of the strength of our recovery,” Deese said on “Fox News Sunday.”
Reports on factory production and consumer purchases showed that economic growth remained solid at the start of the second quarter. Payrolls rose by 428,000 last month with the unemployment rate holding at 3.6 per cent.
Financial markets are at least pricing in the risk of slower growth, with the Standard and Poor’s 500 index down 18 per cent year to date. Futures markets show expectations of the Fed policy rate peaking above 3 per cent sometime next year.
(Updates with poll on economy in sixth paragraph, Deese comments to Fox News in seventh.)
