The U.S. economy is approaching a soft landing—slowing inflation without recession—following the post-pandemic inflation surge, the Wall Street Journal reported on the 15th (local time).
However, the newspaper cautioned that declaring victory in the fight against inflation may be premature.
According to the report, the U.S. economy is showing favorable signs with decelerating inflation, a stable labor market, and solid growth.
The consumer price report released on the 13th showed core CPI, excluding volatile energy and food prices, rose 2.5% year-over-year in January—the lowest increase in four years and 10 months since March 2021.
The Labor Department's employment report released on the 11th showed the U.S. unemployment rate fell to 4.3%. Nonfarm payrolls increased by 130,000 from the previous month, significantly exceeding market expectations.
Jeffrey Cleveland, chief economist at investment firm Payden & Rygel, said: "People used to tell me the only way to get inflation down to 2% was a spike in unemployment. But the worst-case disaster everyone had in mind didn't happen."
Yet even if the economy doesn't need an oxygen mask, it's not time to unbuckle seat belts, WSJ noted.
The U.S. Personal Consumption Expenditures (PCE) price index, last reported through November, rose 2.8% year-over-year, remaining in the mid-to-high 2% range.
Some on Wall Street expect U.S. companies to begin passing on cost increases from the Trump administration's tariff policies to consumers. Fed officials are not ruling out the risk of inflation rebounding.
Fed officials project the PCE price index will slow to 2.4% by year-end.
Concerns persist that the labor market may prove less stable than expected. Experts anticipate a "no hire, no fire" pattern as job growth slows while unemployment remains steady.
Another risk is that U.S. household wealth has been buoyed by years of stock market gains.
A stock selloff could boomerang back, dampening consumption and weakening the engine of economic growth.
Some worry that robust consumption could actually threaten the soft landing. Strong spending drives growth but can make it harder to slow inflation.
WSJ concluded: "Whether Kevin Warsh, President Trump's choice to succeed Fed Chair Jerome Powell, will inherit a Fed mandate to solidify recent gains or pursue something more ambitious will determine what comes next."