This former Fed official doesn't foresee Warren's 'devastating' recession

Brian Sozzi

There is likely a recession coming, but according to former Fed Governor Randall Kroszner, it won't be so devastating as to thrust the economy into a tailspin.

"I think most indicators and most economists would suggest that we are not there," Kroszner told Yahoo Finance Live (video above) about the prospects for a bruising recession at the hands of rampant inflation and aggressive rate hikes from the Fed.

Big names such as Senator Elizabeth Warren (D-MA) have recently floated the idea of a nasty recession, fueled in part by the view that the Fed is well behind the curve on wrangling inflation.

"With Mr. Powell expected to announce another round of aggressive interest-rate hikes, the Fed risks triggering a devastating recession," Warren said in a recent Wall Street Journal op-ed.

Kroszner added that while that scenario is possible, it isn't the most likely outcome.

"I don't think we'll have to have a devastating early 1980s-type recession," Kroszner said. "But of course, there are a lot of shocks that could come in that have nothing to do with the Fed that could make things worse. But I don't see that as my baseline scenario."

Former Federal Reserve Board Member Randall Kroszner, who is now Professor of Economics at the University of Chicago, speaks during a presentation at the American Economic Association Conference in Atlanta, Georgia, January 4, 2010. REUTERS/Tami Chappell (UNITED STATES - Tags: BUSINESS HEADSHOT)
Former Federal Reserve Board Member Randall Kroszner, who is now Professor of Economics at the University of Chicago, speaks during a presentation at the American Economic Association Conference in Atlanta, Georgia, January 4, 2010. (REUTERS/Tami Chappell) (Tami Chappell / reuters)

To be sure, the debate on whether the U.S. economy is in or headed into a recession is well underway.

The Bureau of Economic Analysis (BEA) said last week that second-quarter GDP fell 0.9% as consumers and businesses pulled back on their spending due to high inflation.

This represented the second-straight quarter of economic contraction after GDP in the first quarter declined by 1.6%, a pattern that is seen by some as an unofficial recession indicator.

Top economists have argued against the idea that a recession is looming by pointing to measures of employment and incomes that remain very solid.

Other experts aren't sold on the rosier economic outlooks.

"I wouldn't be surprised if they [the National Bureau of Economic Research] actually push the start of the recession to the end of last year," Dreyfus Mellon Chief Economist Vincent Reinhart, who spent 24 years in various research roles at the Federal Reserve, said on Yahoo Finance Live. "So we might wind up being in one of the longer recessions on record."

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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