Fed’s Harker says a ‘soft landing’ is in sight as inflation wanes

The president of the Philadelphia Federal Reserve said inflation is slowing toward low, pre-pandemic levels and that the central bank appears primed to achieve a “soft landing” for the U.S. economy.

The Fed’s “balanced” approach “has put us on the path to a soft landing,” Patrick Harker said in prepared remarks at a forum at Rowan University in New Jersey.

“Now certainly we haven’t touched down, and we’re going to have to keep our seatbelts on,” he said. “But with inflation continuing to fall back to our 2% target, with employment remaining strong, and with consumer sentiment looking up, the runway at our destination is in sight.”

A soft landing refers to a situation in which the Fed raises interest rates high enough to tamp down inflation, but without causing a recession. The central bank has only pulled off such a feat once or twice in its history.

Harker was one of the first Fed officials to conclude publicly last fall that the bank did not need to raise interest rates any further to nudge inflation lower. He said his thinking was influenced by the danger of excessively high interest rates causing too much collateral damage.

Harker did not say when the Fed should begin cutting rates in his prepared remarks. He was planning to take questions from students at the event.

A string of top Fed officials have warned Wall Street not to expect interest-rate cuts very soon. As a result, investors have largely pushed back their expectations for a rate cut to May, instead of March as many had previously anticipated.

Read: Inflation isn’t ‘all the way there’ to the Fed’s 2% goal, Kashkari says. Rate cuts can wait.

Read: Fed’s Mester warns against cutting rates too soon and too quickly

Some Fed officials have hinted that even May would be too early for such a move.

Fed Chair Jerome Powell has recently stressed that he wants to be certain inflation is slowing toward the central bank’s 2% goal.

Inflation has decelerated to a 3% annual rate from as high as 9% a few years ago, and has fallen to a 2% rate in the last six months.

What’s more, the surprising strength of the U.S. economy has given the Fed leeway to take its time on rate cuts, officials have said.

Growth has not slowed down much, if at all, since the Fed embarked on a series of rapid interest-rate increases almost two years ago.

Normally, rising rates put great stress on the economy. This time around, that hasn’t been the case; while home buying has slowed and manufacturing has suffered, most U.S. industries are doing OK.

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