US will avoid recession but inflation seen staying high says Conference Board

The Conference Board believes the US will avoid a recession but that inflation will stay stubbornly high, complicating the job for US rate setters. "The challenge for both the Federal Reserve Board and the US economy is that this period of sub-par growth is likely to have little impact on inflation and short-term interest rates," says Gail D. Fosler, chief economist of The Conference Board. "Rather than coming down, they are likely to remain high for an extended period or even go up," she said of inflation and near term rates. The US Fed kept the benchmark repo rate unchanged at 5.25 pct during its last two meetings, halting its run of 17 consecutive hikes. "Despite the financial market's enthusiasm for the Fed's restraint in August, it is hard to believe that the Fed will not have to continue to raise the Fed funds rate in the face of these inflation pressures," says Fosler. It will take some doing for the Fed to lower rates, she added. "Before the Fed can actually cut rates, an event or shock of a sufficient magnitude to reverse the currently entrenched optimism in commodity markets will have to occur."