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Inflation can continue to decline without a sharp increase in unemployment — a so-called soft-landing — a top Federal Reserve official said Thursday.
“I believe a soft landing is possible, with continued disinflation and a strong labor market, but it is not assured,” Fed Gov. Lisa Cook said in a speech at the Fed’s San Francisco regional bank.
The softer-than-expected consumer-inflation data released earlier this week has given rise to hopes that the economy won’t have to experience a recession to get inflation back to the Fed’s 2% target.
Wall Street is pricing in 100 basis points of rate cuts next year.
In her remarks, Cook said she was worried that the Fed hadn’t tightened enough, but also that the economy was already faltering under the burden of higher interest rates.
“Some parts of the economy are showing strain from tighter financial conditions,” Cook said. She pointed out that households at the lower income levels “have largely exhausted their excess savings,” while delinquencies on auto loans and credit cards have risen to pre-pandemic levels or even higher.
Small businesses are also facing tighter credit conditions and higher rates as they roll over those short-term loans, Cook said.
“I am considering whether small businesses, the housing sector, and low-and moderate-income households could be warning of broader stress ahead,” she said.
Stocks
DJIA
SPX
were lower in midday trading on Thursday while the yield on the 10-year Treasury note
BX:TMUBMUSD10Y
fell to 4.47%.
