US Fed governor says soft landing might not occur

WASHINGTON — The US economy is not out of the woods yet and could still see a rise in unemployment, a Federal Reserve governor wrote in a co-authored paper published Friday.

The US central bank cut its key lending rate by half a percentage point earlier this week in its first reduction for more than four years, sharply lowering borrowing costs in a bid to boost the economy and support the cooling labor market.

But despite recent progress, there is still reason to be cautious about the world’s largest economy, Fed Governor Christopher Waller wrote in a paper co-authored with Andrew Figura, a senior economist at the bank.

“The labor market is not fully back to where it was prior to the pandemic, and inflation remains significantly” above the Fed’s long-term inflation target of two percent, they wrote.

“As a result, it is possible that a soft landing will not occur,” they added, referring to a scenario where inflation eases to target with only a “noticeably smaller increase in unemployment than has occurred in previous recessions.”

But despite this warning, Waller and Figura said most forecasters still expected a soft landing, with only a “modest” rise in the unemployment rate.

“Clearly, they also believe that a soft landing in the labor market is possible,” they added.