Powell says he cannot guarantee a ‘soft landing’ as the Fed seeks to rein in inflation

U.S. Federal Reserve Chair Jerome Powell speaks during a news conference in Washington, D.C., May 4, 2022.

Jim Watson | AFP | Getty Images

Federal Reserve Chairman Jerome Powell warned on Thursday that controlling inflation could cause some economic trouble, but it remains his top priority.

Powell said he could not promise a so-called soft landing for the economy as the Fed raises interest rates to stem price increases that are near their fastest pace in more than 40 years.

“So a soft landing is really just getting back to 2% inflation, keeping the job market strong. And it’s quite challenging to get that right now, for a few reasons,” the central bank governor said in an interview with Marketplace. .

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

“So it’s going to be challenging, it’s not going to be easy. Nobody here thinks it’s going to be easy,” he said. “However, we think there are ways… to get there.”

The statements were published the same day the Senate overwhelmingly confirmed Powell for a second term, a move that came nearly seven months after President Joe Biden first presented the nomination.

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

Last week, the Fed approved a half-percentage-point interest rate hike that followed a 0.25-percentage-point hike in March. Markets expect the Federal Open Market Committee, which sets rates, to hike another half a point in June and continue raising benchmark rates through the end of the year.

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

“Our objective, of course, is to get inflation back to 2% without the economy going into recession, or, put that way, with the job market quite strong,” he said. “That’s what we’re trying to achieve. I think the one 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 was criticized for the Fed’s delay in raising rates and halting its bond-buying program, even as inflation soared. Furthermore, at his post-meeting press conference last week, he made comments that were interpreted as more aggressive measures, such as a 75 basis point increase, 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 that “we did the best we could”.

“Now we see the picture clearly and we are determined to use our tools to get us back to price stability,” said Powell.

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