”We'll be able to get inflation moving down by the end of the year, but there will be no recession,” Daly said in a live-streamed speech on the economy and inflation. “Growth would decelerate, but this will be a temporary occurrence. I don't think we'll enter a recession. I don't think we'll see stagflation.”
After the US economy contracted 3.5% in 2020 from disruptions forced by the COVID-19 measures, it expanded by 5.7% in 2021, growing at the fastest pace since 1982.
However, inflation has grown even faster. The Personal Consumption Expenditure Index, a US inflation indicator closely followed by the Federal Reserve, expanded 5.8% in the year December and 6.4% in the 12 months to February, both also at their fastest in four decades.
The Federal Reserve has vowed to bring inflation back to its target range of 2% with a series of rate hikes.
The central bank approved its first pandemic-era rate hike on March 16, raising rates by 25 basis points, or a quarter percentage point. Many of its policy-makers have said since that the March hike was too tame and more aggressive increases of 50 basis points, or half percentage point, may be needed. The central bank is considering as many as seven rate adjustments this year.
Many economists have expressed fears that aggressive or excessive action on rates by the Federal Reserve could lead to a recession, which is technically defined as two quarters or more of negative growth in a year.
Some have also spoken about the potential for stagflation, which is a combination of slow economic growth, high unemployment and high inflation. This phenomenon is common particularly when oil prices are high, like they are now, at around 14-year peaks of above $100 a barrel.
Daly dismissed such concerns, admitting that “Fed predictions suggest [a] little overshooting on rates." But she added: "I don't expect a significant slowdown in the US economy as a result of high oil prices.”
She said she expected inflation pressure and supply-chain issues from the two-year long coronavirus pandemic to persist, although “some green shoots”, or new economic fortunes, were also likely.