Former New York Fed chief: Recession 'pretty likely' in US

The Federal Reserve has become more aggressive in its pursuit to curb inflation, and former Federal Reserve Bank of New York President William Dudley said the central bank’s actions means a recession is likely.

“A recession is pretty likely just because of what the Fed has to do,” Dudley said in an interview with Bloomberg on Tuesday. “But 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.”

The Fed raised interest rates last year, and has said it will continue down that path to stymie inflation, with the ultimate goal of pushing it down to 2 percent over the next few years. Dudley said it needs to drive up the unemployment rate enough to slow down the economy.

But Dudley’s warning of a recession was a measured one, making sure to stipulate that he doesn’t think the slowdown will be severe, as the Fed would be the one engineering the cutback in activity. 

“I don’t think that there’s a big risk of a financial-instability cataclysm that pushes the economy into a deep recession,” Dudley said.

Dudley’s prediction about the American economy comes as a Wall Street Journal survey found that two-thirds of economists believe that a recession is on the horizon.

The Journal surveyed economists at 23 large financial institutions that do business with the Fed and found that most believe a recession will happen this year. Only five of the financial institutions surveyed said they do not expect a recession this year or next year.