Is Jerome Powell’s Fed Pulling Off a Soft Landing?

The Federal Reserve appears to be creeping closer to an outcome that its own staff economists viewed as unlikely just six months ago: lowering inflation back to a normal range without plunging the economy into a recession.

Plenty could still go wrong. But inflation has come down notably in recent months — it is running at 3.1 percent on a yearly basis, down from a 9.1 percent peak in 2022. At the same time, growth is solid, consumers are spending, and employers continue to hire.

That combination has come as a surprise to economists. Many had predicted that cooling a red-hot job market with far more job openings than available workers would be a painful process. Instead, workers returned from the labor market sidelines to fill open spots, helping along a relatively painless rebalancing. At the same time, healing supply chains have helped to boost inventories and ease shortages. Goods prices have stopped pushing inflation higher, and have even begun to pull it down.

The Fed is hoping for “a continuation of what we have seen, which is the labor market coming into better balance without a significant increase in unemployment, inflation coming down without a significant increase in unemployment, and growth moderating without a significant increase in unemployment,” Jerome H. Powell, the Fed chair, said Wednesday.

As Fed policymakers look ahead to 2024, they are aiming squarely for a soft landing: Officials are trying to assess how long they need to keep interest rates high to ensure that inflation is fully under control without grinding economic growth to an unnecessarily painful halt. That maneuver is likely to be a delicate one, which is why Mr. Powell has been careful to avoid declaring victory prematurely.

But policymakers clearly see it coming into view, based on their economic projections. The Fed chair signaled on Wednesday that rates were unlikely to rise from their 5.25 to 5.5 percent setting unless inflation stages a surprising resurgence, and central bankers predicted three rate cuts by the end of 2024 as inflation continues to cool and joblessness rises only slightly.