Fed chair admits recession is 'likely' in leaked call

"We would tell you that a recession is almost as likely as very slow growth."

Hannah Nightingale Washington DC

In a call made public on Thursday, Federal Reserve Chairman Jerome Powell told the Russian duo Show VL who posed as Ukrainian President Volodymyr Zelensky in a prank call that a recession is as likely as a slow-growing economy in the United States at this point in time. 

"We would tell you that a recession is almost as likely as very slow growth," Powell told the duo during the conversation.

"Let me just say it’s a great honor to speak to you today. I’m glad you made time to speak to me, and it’s great to be with you today," Powell told the faux leader.

The duo asked Powell, "Do you have your prediction about inflation in the US?"

Powell said that the Federal Reserve’s policy rate increases have enabled "inflation to come down and we think that’s working now," and that the reserve is "very much" on track to reach the target of 2 percent inflation.

"A lot depends on what happens in Ukraine on that, and what happens with Russia and their energy and also with the opening of China.

"If the rate is raised further, the standard of living of the population will fall. So how much should it fall in order for the Fed to stop raising the rate?" the duo asked.

"You know, we’ve raised rates quite a lot, and it’s — the market is already pricing in two more rate hikes, two more quarter percentage point rate hikes. We’ll look around after we make those two and we’ll say, you know, should we do any more? And then the question will be how long do we keep rates at this level? And I think we’ll keep them there for quite some time," Powell responded.

The duo asked if inflation continued to rise, would the Fed raise their rates again, to which Powell responded, "yes, of course."

"We will. If we need to raise our rates more then we’ll absolutely do that. We raised rates very sharply, historically sharply last year to get to the place we’re at now."

"In other words, so does the Fed think that inflation should be reduced to persons at any cost?" Show VL asked.

Powell stated that it was the Fed’s "obligation" to get inflation down to two percent, and that in the future the Fed would be considering "effects on the labor market" from the rate hikes.

The duo noted lower workweek hours reported by the Department of Labor, as well as a PMI under 50 percent, to which Powell stated, "there are some modest signs that the labor market is weakening."

"For example, the number of hours worked per week ticked down a very small amount, that is a sign of slight softening in labor market conditions. That is true. In addition, wages, which have been very very high, we calculate, we track wages quite carefully, there’s still very high increases, but the increases have been declining a little bit and that’s a good thing because too high wage inflation causes price inflation."

Powell continued on to state that older people have dropped out of the workforce because they don’t want to risk getting Covid-19, adding, "the US labor force has really shrunk since Covid."

"So we have a labor shortage in a way, we have a shortage of available workers, and that’s part of what makes it hard to get inflation down."

Powell stated that growth in 2022 was "positive but modest" at around 1 percent, and that "most forecasts call for the US economy to continue to grow but at a pretty subdued level. So growth of less than 1 percent, let’s say, but we would also tell you that a recession is almost as likely as very slow growth. So that’s a fact."

Powell said that it was due in part to the raised rates, and that the US economy needs a period of slow growth to "cool off" the labor market and wages.

"That’s the only way we know to bring inflation down. And it can be painful, but we don’t know of any painless way for inflation to come down."


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