On The Money — Powell acknowledges Fed could cause a recession
The chief of the Federal Reserve pulled no punches Wednesday. We’ll also look at President Biden pushing for a gas tax holiday and the White House trying to keep everyone optimistic about the economy.
But first, startling numbers about the prevalence of long COVID.
Welcome to On The Money, your nightly guide to everything affecting your bills, bank account and bottom line. For The Hill, we’re Sylvan Lane, Aris Folley and Karl Evers-Hillstrom. Someone forward you this newsletter? Subscribe here.
Fed chief: Recession ‘a possibility’
Federal Reserve Chairman Jerome Powell acknowledged Wednesday that the central bank’s battle against high inflation could tip a so-far resilient U.S. economy into a recession.
- Testifying before the Senate Banking Committee, the Fed chief ceded that the bank’s ongoing series of interest rate hikes could slow the economy enough to halt job gains and economic growth — the two signs of an economy in retreat.
- Inducing a recession is “not our intended outcome but certainly a possibility,” Powell said when asked by Sen. Jon Tester (D-Mont.) if the Fed could trigger a downturn.
“And, frankly, the events of the last few months around the world have made it more difficult for us to achieve what we want,” he added.
The background: Powell’s appearance before the committee comes amid growing concern over the outlook for the U.S. economy and the rising chances of a recession hitting the nation sometime within the next two years. The Fed last week issued a 0.75 percentage point interest rate hike — the largest since 1994 — after Labor Department data showed inflation continuing to surge in May.
The Fed’s goal is to slow the economy enough to reduce inflation without forcing Americans out of their jobs or stalling the growth altogether. But inflation has continued to surge despite several rapid rate hikes, and economists fear it may not come down until the Fed raises rates to a high enough level to slow the economy into recession.
Sylvan has more here.
GAS TAX BREAK?
Biden officially backs gas tax holiday
President Biden on Wednesday officially backed the suspension of both federal and state taxes on gasoline amid soaring fuel prices.
“Today, I’m calling on Congress to suspend the federal gas tax for the next 90 days through the busy … travel season,” Biden said at the White House.
“But we can also cut gas prices even more in another way. That’s why the second action I’m taking is calling on states to either suspend the state gas tax as well or find other ways to deliver some relief,” he added.
- The federal gasoline tax is 18 cents per gallon, while state gas taxes average about 26 cents per gallon. Biden also alluded to cuts to the 24 cent federal tax on diesel.
- His federal effort, however, is likely to face high hurdles in Congress amid concerns that it would siphon funds from a trust fund that pays for transportation projects.
- The White House aims to offset the loss of tax revenue with other federal funds to ensure that construction projects continue.
Rachel Frazin has more here.
Read more: Manufacturers, transportation groups push back on Biden gas tax proposal
FEARING FEAR ITSELF
White House seeks to quell recession anxiety
The White House is scrambling to tamp down fears of a recession as high inflation and the Federal Reserve’s attempts to rein it in boost the risks of a downturn.
- President Biden and top administration officials have spent days attempting to reassure the American public that the U.S. economy is not destined to slip into recession.
- Despite growing alarm among consumers, business leaders and economists, the administration has signaled hopefulness in the economy’s resilience.
White House press secretary Karine Jean-Pierre told reporters on Tuesday that the U.S. is in a “moment of transition.” She pointed out some positive economic figures, like the low unemployment rate and strong household balance sheets and business investment.
“We’re not in a recession right now,” Jean-Pierre said. “Right now, we’re in a transition where we are going to go into a place of stable and steady growth and that’s going to be our focus.”
But economists across the ideological spectrum see the risks of a recession growing as the Federal Reserve races against rising prices.
Here’s more from Sylvan.
Crypto downturn fuels questions over industry’s future
The market value of most cryptocurrencies has plummeted over the last few months, leaving investors reeling.
The steep fall amid a wider market dip poses risks for the future of crypto assets and raises questions about their insulation from the rest of the economy.
- After peaking at nearly $70,000 per coin late last year, Bitcoin, which remains the most traded currency on the market, is now trading for a little more than $20,000. Other top coins like Ethereum and Solana have experienced similar falls.
- While cryptocurrencies were envisioned as an alternative to traditional financial assets such as stocks and bonds, digital token values have moved in the same direction as stock prices at an increasing rate.
Sylvan and Chris Mills Rodrigo have more here.
Good to Know
Hiring freezes and layoffs are hitting the tech sector as Silicon Valley prepares for a predicted recession.
The hiring impacts are hitting companies of all sizes across tech, from industry giants to more nascent startups, signaling that the industry’s growth is slowing amid rising interest rates and surging inflation.
Here’s what else we have our eye on:
- The internal watchdog at the IRS said that the agency is still buried in a mound of unprocessed tax returns, despite a progress report from the IRS earlier in the week that said the situation was getting better.
- The House Appropriations Committee approved its $761 defense appropriations bill for fiscal 2023, sending the bill to the full chamber for a vote.
- A group of seven Democratic senators sent a letter to Federal Trade Commission Chair Lina Kahn calling on the agency to use “every tool at its disposal” to protect marginalized groups from discrimination in the marketplace.
That’s it for today. Thanks for reading and check out The Hill’s Finance page for the latest news and coverage. We’ll see you tomorrow.
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