Powell says he can’t guarantee a “soft landing” as the Fed tries to control inflation

Powell says he can’t guarantee a “soft landing” as the Fed tries to control inflation

Federal Reserve Chairman Jerome Powell speaks during a news conference in Washington, DC May 4, 2022.

Jim Watson | AFP | Getty Images

Federal Reserve Chair Jerome Powell warned Thursday that controlling inflation could cause some economic pain but remains his top priority.

Powell said he couldn’t promise a so-called soft landing for the economy as the Fed hikes interest rates to curb price increases that are near their fastest pace in more than 40 years.

“So a soft landing is really just a return to 2% inflation while the labor market remains strong. And it’s quite difficult to achieve that now for a number of reasons,” the central bank governor said in an interview with Marketplace.

He noted that with a tight labor market pushing up wages, avoiding a recession that often follows aggressive policy tightening is a challenge.

“So it will be a challenge, it will not be easy. Nobody here thinks it’s going to be easy,” he said. “Even so, we believe there are ways… for us to get there.”

The remarks were released on the same day the Senate overwhelmingly confirmed Powell for a second term, a move that came nearly seven months after President Joe Biden first submitted the nomination.

Topping his list of priorities for the second term will be controlling price inflation, which was at an annual rate of 8.3% in April, just below a more than 40-year high recorded in March.

The Fed approved a half-percentage-point rate hike last week, following a quarter-point hike in March. Markets expect the rate-setting Federal Open Market Committee to hike another half-point in June and raise interest rates further through the end of the year.

For his part, Powell said he understands the additional pain higher rates could cause but said the Fed needs to act aggressively.

“Of course, our goal is to get inflation back down to 2% without the economy going into recession or, to put it that way, the job market staying pretty strong,” he said. “That’s what we’re trying to achieve. I think the only thing we really can’t do is fail to restore price stability. Nothing in the economy works, the economy doesn’t work for anyone without price stability.”

Powell has come under fire for the Fed’s delay in raising interest rates and halting its bond-buying program despite rising inflation. Additionally, at his press conference after last week’s meeting, he made comments that were interpreted as more aggressive moves, such as a 75 basis point hike off the table.

He said in the Marketplace interview that he’s “not sure how much difference it would have made” to act faster, adding, “We did our best.”

“Now we see the picture clearly and are committed to using our tools to bring us back to price stability,” Powell said.

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