Fed Navigates Toward Soft Landing As Inflation Cools Without Slamming Brakes on Growth
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Inflation has come down from a 9.1% peak in 2022 to 3.1% currently, while growth remains solid, consumers keep spending, and hiring continues. This surprises economists who predicted cooling the job market would be painful.
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Supply chain healing and goods price drops have helped pull inflation lower without significant job losses or lower growth so far. The Fed hopes this continues as they try to stick the landing.
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Jerome Powell has avoided prematurely declaring victory, but signals rates may not rise further unless inflation rebounds, and predicts 3 rate cuts by end of 2024 as inflation keeps cooling.
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If the soft landing is achieved, it would be a major feat for the Fed after failing to initially foresee lasting inflation, and forcefully hiking rates which many worried would trigger recession.
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Questions remain whether inflation will fully return to 2% without more labor and goods market slack, but policy next year may need art as much as science in reacting to unpredictable growth and inflation.