Powell Says He Can’t Promise a ‘Soft Landing’ and Avoid Recession as Fed Fights Inflation

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Federal Reserve Chair Jerome Powell said Thursday that persistent supply chain disruptions and “huge” geopolitical events happening around the globe could foil the Fed’s attempts at engineering a so-called “soft landing” for the U.S. economy, with the central bank chief’s statement amounting to an acknowledgment of the possibility of a recession.

Powell made the remarks in an interview on NPR’s “Marketplace,” in which he was asked whether he’s more concerned about the prospect of high inflation sticking around or the notion that the Fed’s monetary tightening response to surging prices could spark a recession.

“It’s a very challenging environment to make monetary policy,” Powell replied. “Our goal, of course, is to get inflation back down to 2 percent without having the economy go into recession, or, to put it this way, with the labor market remaining fairly strong.”

Calling price stability the “bedrock” on which the economy rests, Powell insisted that the Fed’s key objective is to tame runaway prices, saying that “nothing in the economy works” unless inflation is reined in.

‘Prepared to Do More’

Powell reiterated his expectation that the Fed would tighten monetary settings by hiking rates by 50-basis-point increments over the next two meetings but added that the central bank is prepared to act more aggressively if conditions warrant.

“We have a series of expectations about the economy. If things come in better than we expect, then we’re prepared to do less. If they come in worse than when we expect, then we’re prepared to do more,” Powell said, prompting a question about whether the Fed would consider a 75-basis-point hike, which he declined to do, saying only that policymakers would “adapt to the incoming data and the evolving outlook.”

Powell was then asked about a pathway to “this mythical soft landing,” where the policy tightening doesn’t tip the economy into a recession.

“It will be challenging, it won’t be easy,” Powell replied, admitting that it “would have been better” to have started raising rates earlier than in March.

Soft Landing

Addressing challenges, the Fed chief said that monetary policy can cool surging demand, which is part of the inflationary puzzle, but that the central bank has no tools to address supply-side factors.

By Tom Ozimek

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