Federal Reserve's Mouthpiece: The U.S. Economy May Have Achieved a Soft Landing, But No One Is Willing to Declare Victory Lightly

According to the Wall Street Journal, "Fed whisperer" Nick Timiraos wrote that key indicators of the U.S. economy are pointing in the same positive direction: inflation is declining, the labor market remains strong, and economic growth is solid. This is not a final conclusion, but it is the closest the U.S. economy has ever come to achieving a soft landing (i.e., curbing inflation while avoiding a recession). Just four years ago, many economists thought this was impossible. Now, the scenario of the U.S. economy bringing inflation back to the Fed's 2% target without falling into recession has become credible again.

However, even if an oxygen mask is not needed, it is still too early to unbuckle the seatbelt. The Fed's preferred inflation measure, core PCE, is currently close to 3%, and several forecasters expect that as tariff-related price increases are transmitted to more areas, significant progress on inflation this year is unlikely.

Meanwhile, the labor market may not be as strong as last week's report suggested. Jeffrey Cleveland, chief economist at Payden & Rygel, stated that, objectively speaking, the labor market has been weak, and this year the unemployment rate is more likely to rise than to fall.