Policymakers at the Federal Reserve are beginning to entertain the possibility of recession, as high inflation pushes the central bank to raise interest rates at the fastest pace in decades.

“It’s certainly a possibility,” Fed Chairman Jerome Powell told the Senate Banking Committee on Wednesday when asked about the chance of a recession.

Powell clarified: “It’s not our intended outcome.”

The Fed chief's remarks on Wednesday stand in contrast to his commentary from early May, when the Fed chair asserted that, “nothing about [the economy] suggests that it’s close to, or vulnerable to, a recession.”

The change in tone underscores seeming concern within the Fed that the cost of lowering inflation may be a drop-off in economic growth and potential job losses.

“We could have a couple of negative quarters" of economic growth, Philadelphia Fed President Patrick Harker told Yahoo Finance in an interview Wednesday.

The definition of a “recession” is commonly referred to by investors as two back-to-back quarters of negative economic growth. The first quarter of 2022 already saw a real GDP contraction of 1.5% on an annualized basis. An initial reading on second quarter growth is due at the end of July.

The National Bureau of Economic Research, which is in charge of “dating” recessions, clarifies that they look beyond real GDP figures when declaring a recession. The NBER looks at real income, employment, among other economic variables.

“Our goal is to achieve 2% inflation while still keeping the labor market strong,” Powell told Congress on Wednesday.

No 'hard landing'

Although the Fed is embracing the possibility of a recession, the Fed is not expecting a "hard landing," or an abrupt turn in the economy.

On Wednesday, Harker said an unemployment rate “significantly” higher than 4% would signal the so-called “hard landing.” The unemployment rate was at a relatively low 3.6% as of May.

In economic projections released last week, the median member of the Fed’s policy-setting committee forecast that the central bank could lower inflation to a 2.2% rate through 2024 with the unemployment rate only rising to 4.1%.

Speaking with reporters last week, Powell said the Fed is "not trying to induce a recession," adding that its policy "[does not] seek to put people out of work."

At the center of the Fed’s projections: raising short-term interest rates to about 3.8% next year, which would represent multiple rate hikes from the current setting of about 1.6%.

By making it more expensive to borrow, the Fed hopes to moderate demand. Harker said Wednesday that he is beginning to see some signs of demand softening in the economy.