US Federal Reserve achieving soft landing will be challenging but doable

Hiking interest rates to tame a 40-year high inflation spike without throwing the US economy off course will be difficult, but doable, a top stateside rate setter said today.

“The ongoing pandemic and war in Ukraine bring a tremendous amount of complexity and uncertainty” to the trajectory of prices, John Williams, president of the New York Fed, said.

Central bankers are walking a tight line between reining in policy enough to cool inflation without engineering a slow down in their economies.

“We will need to be data dependent and adjust our policy actions as circumstances warrant,” Williams added.

The comments come as Wall Street expects fresh US inflation figures published tomorrow to show the rate of price rises is starting to ease.

Inflation climbed to its highest level since the 1980s in March, surging to 8.5 per cent. 

Some analysts have predicted inflation may have peaked in the same month.

However, Russia’s invasion of Ukraine has sent energy and food prices soaring, casting doubt over where inflation will settle in the long-term.

China’s decision to plunge key trading hubs into lockdown in response to a surge in Covid-19 cases has added to global inflationary pressures by gumming up supply chains.

The Fed is embarking on a policy shift from supporting the US economy through the pandemic with cheap money to launching a rapid tightening cycle.

Chair Jerome Powell and co last week hiked borrowing costs 50 basis points, the steepest rise since 2000, taking the world’s most important interest rate to a target range of 0.75 per cent and one per cent.

Powell said a 75 basis point hike was not something the Fed was considering, but stressed further 50 basis point rises are on the table.