Powell says he cannot guarantee a ‘soft landing’ as the Fed looks to control inflation

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

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

“So a soft landing is a return to 2% inflation while maintaining the strength of the labor market. It’s very difficult to achieve now, for two reasons,” the central bank chief said in an interview with Marketplace. .

He noted that in a tight labor market that raises wages, avoiding the recession that often follows strict policy tightening will be a challenge.

“So it will be difficult and it will not be easy. Nobody here thinks it will be easy,” he said. “However, we believe there are paths… for us to get there.”

The remarks were published 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.

High on his priority list for a second term will be controlling price inflation, which recorded in April at an 8.3% annual rate, far from the highest level in more than 40 years recorded in March.

The Federal Reserve last week agreed to raise the interest rate by half a percentage point after a quarter point increase in March. Markets expect the rate-setting FOMC to raise another half-point in June and continue raising rates through the end of the year.

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

“Our goal, of course, is to bring inflation back to 2% without the economy entering a recession, or in other words, with the labor market remaining fairly 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, though. Nothing in the economy works, and the economy doesn’t work for anyone without price stability.”

Powell came under some criticism for the Fed’s delay in raising interest rates and halting its bond-buying program even as inflation escalated. Moreover, in his post-meeting press conference last week, he made statements that were interpreted as taking tougher steps, such as a 75 basis point increase, off the table.

In an interview with Marketplace, he said he was “not sure how much of a difference it would have made” to operate more quickly, adding, “We did our best.”

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