Ahead of Big Step... Former Fed Vice Chair: "US Recession Inevitable"

[Asia Economy New York=Special Correspondent Joselgina] Roger Ferguson, former Vice Chairman of the U.S. Federal Reserve (Fed), expressed concerns about the possibility of a U.S. economic recession ahead of the May Federal Open Market Committee (FOMC) regular meeting.

On the 2nd (local time), in an interview with economic media CNBC Squawk Box, former Vice Chairman Ferguson stated, "At this stage, a recession is almost inevitable."

He described it as a "witch's brew (a harmful or threatening mixture)" and pointed out, "Unfortunately, the likelihood of a recession is very, very high because their (Fed's) tools are crude, and the only thing they can control is aggregate demand."

This comment is interpreted as highlighting that while the central bank Fed has positioned itself as an inflation fighter and is signaling so-called big steps of raising interest rates by 0.5 percentage points at once, a significant factor behind the recent high inflation stems from supply issues. In fact, there are no tools to control the supply side.

Former Vice Chairman Ferguson estimated the probability of the U.S. economy entering a recession in 2023 to be over 50%.

He also mentioned that expecting a mild recession would be the best-case scenario. He viewed that if the U.S. recession results in negative growth only in the second quarter, it would be considered a "good performance."

Ferguson said that under the current circumstances, the Fed has no choice but to raise interest rates, stating, "Several 0.5 percentage point rate hikes must be implemented this year." The Fed is expected to carry out a so-called big step of raising the benchmark interest rate by 0.5 percentage points for the first time in 22 years at the May FOMC meeting scheduled for the 3rd to 4th, and also concretize quantitative tightening measures such as balance sheet reduction.

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