Federal Reserve Board Chairman Jerome Powell speaks during a press conference following a closed two-day meeting of the Federal Open Market Committee on interest rate policy at the Federal Reserve in Washington, U.S., December 13, 2023.
Kevin Lamarque | Reuters
Fed Chair Jerome Powell said Wednesday that the unique economic conditions created by the Covid pandemic have helped the central bank’s effort to bring down inflation without causing a recession, a rare feat in economic history.
The Federal Reserve signaled in its latest economic projections that it will cut interest rates in 2024 even with the economy still growing, which would potentially be a path to the “soft landing” that many economists viewed skeptically when the central bank began aggressively hiking rates last year to fight post-pandemic inflation.
“This inflation was not the classic demand overload, pot-boiling over kind of inflation that we think about. It was a combination of very strong demand, without question, and unusual supply-side restrictions, both on the goods side but also on the labor side, because we had a [labor force] participation shock,” Powell said at a press conference after the Fed’s last meeting of the year.
The Fed has viewed its inflation fight as a two-front battle of trying to weaken the demand in the economy while the “vertical” supply chain normalized, Powell said. The supply side of various parts of the economy is now getting closer to where it was pre-pandemic, he said.
“Something like that has happened, happened so far. The question is once that part of it runs out — and we think it has a ways to run… — at some point you will run out of supply side help and then it gets down to demand, and it gets harder. That’s very possible, but to say with certainty that the last mile is going to be different, I’d be reluctant to say we have any certainty around that,” Powell said.
“So far, so good, although we kind of assume it will get harder from here,” he added.
