US Fed's soft landing bet: inflation falls, jobs steady, rate cuts loom

Federal Reserve Governor Lisa Cook was upbeat on the trajectory of the US economy on Wednesday, saying that inflation may further go down without a huge jump in unemployment.

In prepared remarks for an economics conference in Australia, Cook drew succinctly to point at evidence that, in her view, a "soft landing" for the US economy was lining up.

Based on Cook, the Fed's preferred measure of inflation recently hovered at 2.6 per cent, just a shade above the central bank's 2 per cent target, while the well-behaved unemployment rate was at 4.1 per cent.

"My baseline forecast...is that inflation will continue to move toward target over time, without much further rise in unemployment," Cook said

She did acknowledge that soft landings—the pressures of inflation going down without a recession—have occurred only a few times in the history of economies, but she also emphasised the rapid deflation of inflation and holding unemployment par as being bright spots for that scenario. No doubt this is a situation where timing with regard to the easing of monetary policy by the Fed makes a difference.

Soft landings are "more likely when policy easing began with inflation already close to target and when there was a relatively firm growth backdrop," she said. "In the US, what I have seen so far appears to be consistent with a soft landing: Inflation has fallen significantly from its peak, and the labour market has gradually cooled but remains strong."

The next meeting of the Federal Reserve is on July 30-31, and investors are now betting on possible rate cuts as early as the next meeting in September.

Cook's comment infers that the Fed is watching trends in inflation and labour market stability to achieve a balanced approach to monetary policy adjustments.