Powell says soft landing is ‘very challenging’ and recession is possible

Federal Reserve Chair Jerome Powell gave his most explicit acknowledgment to date that steep rate hikes could tip the U.S. economy into recession, saying one is possible and calling a soft landing “very challenging.”

“The other risk, though, is that we would not manage to restore price stability and that we would allow this high inflation to get entrenched in the economy,” Powell told lawmakers on Wednesday. “We can’t fail on that task. We have to get back to 2% inflation.”

The Fed chair was testifying before the Senate Banking Committee during the first of two days of congressional hearings. In his opening remarks, Powell said officials “anticipate that ongoing rate increases will be appropriate,” to cool the hottest price pressures in 40 years.

“Inflation has obviously surprised to the upside over the past year, and further surprises could be in store. We therefore will need to be nimble in responding to incoming data and the evolving outlook,” he said.

Powell’s remarks reinforced comments at a press conference last week after he and his colleagues on the Federal Open Market Committee raised their benchmark lending rate 75 basis points — the biggest increase since 1994 — to a range of 1.5% to 1.75%.

While Powell told reporters then that another 75 basis-point increase, or a 50 basis-point move, was on the table for the next meeting in July, Wednesday’s text made no reference to the size of future hikes. Fed Governor Christopher Waller said Saturday he would support a 75basis-point rate increase in July should economic data come in as he expects.