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Tim Duy

The Fed Might Still Blunder Into a Recession

To keep this economic expansion alive, policy makers need to be prepared to cut rates before the data makes a hard turn south.

The Fed is too cavalier toward the risks of a recession.

The Fed is too cavalier toward the risks of a recession.

Photographer: Drew Angerer/Getty Images North America

The Federal Reserve positioned itself to stave off recession by dramatically lowering the expected path of interest rates at the Federal Open Market Committee’s March meeting. While that was a step in the right direction, policy makers need to be prepared to follow through and cut rates when the time comes. But will they? Federal Reserve Bank of New York President John Williams’s insistence that recession risks are not elevated reminds me that there remains plenty of room for the Fed to make a policy error and let the economy slip into recession.

Williams said in Puerto Rico on Friday that “I still see the probability of a recession this year or next year as being not elevated relative to any year.” Such dismissiveness of the possibility of recession seems terribly cavalier given the circumstances. The Fed has shifted from forecasting rate hikes in December to zero increases for 2019. Such a sharp reversal of expectations only happens in an economy decelerating at a pace where a recession can’t be ruled out. This by itself suggests elevated odds of a recession compared with a year ago.