Fed's Daly says the economy can handle rate hikes, but a mild recession is possible

cnbc.com:

San Francisco Federal Reserve President Mary Daly acknowledged Wednesday that a near-certain series of interest rate hikes over the coming months could tip the economy into a shallow recession, though she noted that isn't her expectation.

Responding to the worst inflation the U.S. has seen in more than 40 years, the central bank official said she foresees «an expeditious march» through the year toward benchmark interest rates that would neither stimulate nor repress growth — the «neutral» rate, in Fed parlance.

«Accounting for the risks of being too fast or too slow, I see an expeditious march to neutral by the end of the year as a prudent path,» she said.

The moves, Daly said, would help slow down an overheated economy that now has consumer price inflation running at an 8.5% annual pace.

She cited research from Princeton economist and former Fed vice chair Alan Blinder, who asserted that in 11 previous Fed hiking cycles, seven «were followed by a mild recession or none at all — basically a smooth landing,» she said in remarks at the University of Nevada Las Vegas. «Now, since I'm in Las Vegas, I will offer that I think those are pretty good odds.»

Asked later whether she considered a mild recession to be the equivalent of a soft landing or acceptable outcome, Daly said her outlook is for the economy to slow to «something that looks like below-trend growth, but not tip into negative territory, but could potentially tick into negative territory.»

That likely would mean a shallow recession, unlike those associated with, for instance, the financial crisis of 2008 or the stagflation days of the late 1970s and early '80s, when then-Chairman Paul Volcker jacked up rates so much that the economy fell into a double-dip