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The Federal Reserve is trying to engineer an economic slowdown to try to bring inflation under control, but will try to avoid a protracted recession, Atlanta Fed President Raphael Bostic said Sunday.
“We need a slowdown. There’s no question about that. But I do think that we’re going to do all we can at the Federal Reserve to avoid deep, deep pain,” Bostic said, during an interview on CBS News’ “Face the Nation.”
Last week, the Fed hiked its benchmark interest rate by a supersized 0.75 percentage points — the third straight rate hike of that magnitude. That brought the fed funds rate up to a range of 3%-3.25%. Fed officials also penciled in more large moves this year, which would bring the rate up to 4.4%.
Economists worry that going so fast might “break” the economy and cause a recession.
But Fed officials think the economy can slow and still avoid a severe recession. This is called a “soft landing.”
Bostic said he was optimistic about the economy because the labor market is creating lots of jobs each month and there is “positive momentum.” This might cushion the blow from higher interest rates, Bostic said.
“I actually think that there is some ability for the economy to absorb our actions and slow in a relatively orderly way,” he said.
“There will be some job losses,” Bostic said. But there is a “really good chance” that the number of jobs lost will be smaller than what has been experienced in the past, he added.
The Atlanta Fed president said that some of the bottlenecks that have caused higher prices are starting to ease.
“Over the next several months, we’ll start to see that gap between the high demand and that lower supply narrow significantly,” which will translate into lower inflation, Bostic said.
The market is worried the Fed is looking at the economy through rose-colored glasses.
Adding to investor concern, Nouriel Roubini, the economist known as “Dr. Doom” because of his downbeat predictions, is now forecasting a long and ugly global recession.
Stocks
DJIA,
SPX,
suffered a broad selloff on Friday on heightened fears of a recession. The yield on the 10-year Treasury note
TMUBMUSD10Y,
rose to 3.69%.
