Former New York Federal Reserve President William Dudley on Tuesday said a recession is “pretty likely” in 2023 because the central bank is working aggressively to tamp down inflation.
He added that the Federal Reserve has its finger on the dial and could keep things from tipping into a deep problem.
“What’s different this time I think is that if we have a recession, it’s going to be a Fed-induced recession and the Fed can end the recession by subsequently easing monetary policy,” Mr. Dudley told Bloomberg.
The Federal Reserve steadily increased interest rates last year in an attempt to cool down the economy and wrangle the highest rate of inflation in four decades.
Soaring costs for consumer items, including groceries, have been a headache for Americans. It’s also been a political drag for President Biden, who bet inflation would be temporary, only to see it persist.
Mr. Dudley said because the Fed is controlling rates, it could ease off rate hikes and avoid a catastrophe. He said the bank needs to drive up unemployment to create slack in the labor market and bring wage growth in line with inflation.
“I don’t think that there’s a big risk of a financial-instability cataclysm that pushes the economy into a deep recession,” he said. “I think this is a recession where the Fed has the control; when they need to ease they can do so. The challenge for them is to not ease too soon but to ease in a timely way.”