Powell: Fed may not be able to control a'soft' economic landing

Jerome Powell, Federal Reserve Chair, was just confirmed by the Senate for a second term.

Powell: Fed may not be able to control a'soft' economic landing

Jerome Powell, Federal Reserve Chair, was just confirmed by the Senate for a second term. He acknowledged Thursday for the first-time that high inflation and economic weakness abroad could hinder his efforts to prevent a recession.

Powell has been describing the Fed's push to raise interest rates for weeks as consistent with a "soft landing" for economic growth. In this scenario, the Fed would be able to reduce borrowing costs enough to cool down the economy and curb inflation but not so much as to plunge the economy into recession.

Powell admitted that the Fed's ability to balance -- something many economists doubt -- may be undermined by slowdowns in Europe or China in an interview with American Public Media's Marketplace.

The Fed chair stated that "the question of whether we can execute soft landing -- it may actually depend upon factors that we aren't able to control." "There are enormous events, geopolitical issues going on all over the globe, which will play an important role in the economy for the next year."

These comments show less confidence than Powell previously expressed in the possibility of avoiding a recession. He stated at a press conference last week that he believes there is a good chance for a soft landing, or a better outcome.

He stated that slowing inflation down to the Fed's annual target of 2% -- which is 6.6% according to the preferred measure of the central bank -- would "also include some pain but ultimately the most difficult thing would be if it were not dealt with and inflation was to become entrenched in an economy at high levels."

Europe's economy is suffering from high inflation. This has been aggravated by Russia's invasion in Ukraine and the subsequent spike in oil and natural gas prices. The United States is far less dependent on Russia's energy supplies than Europe.

China's COVID lockdown policies have caused ports to be closed, preventing exports and slowing consumer purchases in cities like Shanghai. Millions of Chinese have been restricted to their homes for several weeks by these COVID restrictions.

Powell suggested that the Fed might at least consider raising its benchmark interest rate by a large three-quarters point if inflation fails to show signs of improvement in the next months. The stock market soared last week when Powell suggested that a three quarter-point rate increase was not possible.

Powell reiterated his comments last week about half-point increases being possible at the Fed's next two meetings in June and July. Powell then added: "If things turn out better than we expected, then we are prepared to do more." We're ready to do more if they are worse than we expected.

Powell answered the question "Do more" as a three-quarter point increase. That's exactly what we'll do.

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This story was published for the first time on May 12, 2022. This story was corrected to include a reference NPR's Marketplace on May 24, 2022. The Marketplace program is not part of NPR, but American Public Media.

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