The US Federal Reserve is on track to achieve the rare feat of lowering inflation without causing a damaging recession, a senior central bank official said Friday.
The Fed recently slowed the pace of its interest rate hikes after lifting rates to a 22-year high, citing progress made in the inflation fight.
Policymakers have voiced growing optimism in recent weeks that the Fed can pull off a so-called “soft landing” — lowering inflation without causing a recession — given the underlying strength of the US economy and the jobs market.
On Friday, another member of the Fed’s rate-setting committee said the central bank is on track to do so.
“I believe that a resolute, but patient, stance of monetary policy will allow us to achieve the soft landing that we all wish for our economy,” Philadelphia Fed President Patrick Harker told a conference in Delaware.
At its most recent meeting in September, the Federal Open Market Committee indicated it expects one more hike will be needed this year.
But a number of policymakers have indicated since then that the Fed may have done enough, and should now change its focus from how high to lift rates, to how long to hold them for.
Futures traders, meanwhile, are assigning probability of close to 70 percent that the Fed will hold rates steady into next year, according to data from CME Group
“So far economic and financial conditions are evolving as I expected, if not perhaps even a tad better,” Harker said on Friday.
He reiterated his belief that, if data trends continue, officials will have reached the point where they can hold rates steady.
“I am more and more confident that not only is monetary policy currently working, but it will continue to work,” he said.
“My expectation is that rates will need to stay high for a while,” he added.
Harker noted underlying strength in the economy, which is expected to continue growing robustly in the third quarter.
The jobs market may need to weaken slightly to bring inflation in line with the Fed’s long-term target of two percent, he said, but added: “This does not mean that I expect mass layoffs.”
Other factors could contribute to a slight increase in unemployment, such as the return to labor force of people sidelined during the pandemic.
Harker said the current “turmoil” in the labor markets, including the auto worker strikes, is “likely” to have a negative impact on the economy.
But he added it is simply “too soon to tell” how big an impact the auto workers strike, and the ongoing strikes in Hollywood, may have on economic activity and inflation.
