Powell: “Soft” financial landing may be beyond the Fed’s control

WASHINGTON (AP) – Federal Reserve Leader Jerome Powell, fresh from winning Senate confirmation for another term Earlier in the day, Thursday acknowledged for the first time that high inflation and economic weakness abroad could hinder his efforts to avoid causing a recession.

For several weeks, Powell has presented the Fed’s efforts to raise interest rates as consistent with a so-called “soft landing” for the economy. Under that scenario, the Fed would be able to tighten borrowing costs enough to cool the economy and curb inflation without going so far as to tip the economy into recession.

But in an interview on NPR̵[ads1]7;s “Marketplace,” Powell admitted that the balancing act – which many economists have said they doubt the Fed can achieve – could be undermined by economic downturns in Europe and China.

“The question of whether we can make a soft landing or not – it may actually depend on factors that we do not control,” the Fed chief said. “There are big events, geopolitical events around the world, that are going to play a very important role in the economy in the next year or so.”

Such comments reflect less confidence in avoiding a recession than Powell has previously conveyed. Just last week, he said at a news conference: “I think we have a good chance of getting a soft or soft landing or a result.”

On Thursday, he said that slowing inflation to the Fed’s annual target of 2% – from the current 6.6%, according to the central bank’s preferred target – “would also include some pain, but ultimately the most painful thing would be if we were to fail. to deal with it and inflation should be anchored in the economy at high levels. “

Europe’s economies are suffering from high inflation, exacerbated by Russia’s invasion of Ukraine and the resulting rise in natural gas and oil prices. Europe has been far more dependent on Russia’s energy supply than the United States has been.

China’s strict COVID locking guidelines has closed ports, hampered exports and curbed spending in cities such as Shanghai, where millions of Chinese have been largely confined to their homes for weeks.

In his interview with NPR, Powell also seemed to suggest that the Fed would at least consider raising its reference rate by an extremely large three quarters if inflation shows no signs of easing in the coming months. Last week, the stock market rose at the beginning when Powell seemed to take a three-quarters interest rate increase off the table.

After repeating last week’s comments that half-point increases were likely at each of the next two Fed meetings, in June and July, Powell added on Thursday: “If things go better than we expect, we are prepared to do less. . If they do worse than we expected, we are prepared to do more. “

Asked if “doing more” meant a three-quarters hike, Powell said: “You have seen this committee adapt to the incoming data and the evolving outlook. And that is what we will continue to do.”

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