• Anxiety about economy has been a drag on Biden’s campaign
  • Brainard downplays risks of Fed’s last-mile push to 2% target

Recent economic data have widened the runway for a so-called soft landing, with growing indications that inflation will continue to fall, White House National Economic Adviser Lael Brainard said.

Easing supply-chain pressures, a robust job market, strong productivity and various lag effects in data together show the fight against inflation is nearing its end, Brainard, the former vice chair of the Federal Reserve, said Friday in a call with reporters.

“There’s every reason to expect continued progress there,” Brainard said. “I think we will continue to see ongoing disinflation, with every reason to anticipate that taking place in an environment of solid growth and good employment.”

The comments signal President Joe Biden’s administration has become even more confident price growth will continue to slow without deep losses in the jobs market or a recession.

Still, the Fed continues to warn investors are getting ahead of themselves in betting an improving outlook will unleash a flurry of cuts in 2024.

“We aren’t really talking about rate cuts,” Federal Reserve Bank of New York President John Williams told CNBC on Friday. The market is “reacting very strongly, maybe more strongly, than what we are showing in terms of our projections.”

Inflation has fueled voter anxiety about the economy and weighed down Biden’s approval numbers headed into a likely 2024 rematch with former President Donald Trump.

Trump led Biden 51% to 33% when respondents in seven swing states were asked which leader they trusted more to handle the economy, a Bloomberg News/Morning Consult poll published Thursday found.

Brainard released a memo earlier this week detailing how supply chains have improved and other indicators have offset the spike in prices — and how the rosier numbers diverged from forecasts a year ago.

“The picture is very good relative to what many forecasters felt was a near certainty,” she said Friday. “So I think that’s good news. And it’s also, however, incomplete.”

Biden will continue to look for ways to use legislation he’s signed to fight price growth, she said, and the administration will continue to use “bully pulpit enforcement actions,” including targeting alleged corporate price-gouging.

Inflation has followed the downward trajectory of supply-chain pressures “remarkably closely” with a lag of several months, she said. Costs of new housing rentals also take time to work their way into the data, she said.

“That still lies ahead and should give us also some additional help” on lowering so-called core inflation, which remains elevated at 4% annually.

Economic indicators have shown “the width of the runway for a soft landing has gotten much bigger,” Brainard said, adding that risks remain.

Hindsight tells “an incredibly strong story that the supply side was fundamentally broken” and since returned to normalized levels, she said.

Brainard pushed back when asked whether the last mile of the Fed’s push to get to 2% inflation could be the most painful.

“I understood that maybe a year ago when there was still a lot of murkiness in the data and the inflation trajectory. I don’t get that argument today,” she said.

The improving outlook has led to a drop in borrowing costs. Brainard said the president “is very focused on fiscal deficit reduction,” even if projected US borrowing costs recede. But Biden believes the gap should be addressed in part by raising taxes on the corporations and the wealthy, whereas Republicans favor spending cuts rather than new revenues.

“There’s a difference of views in priorities, but the president is strongly committed to deficit reduction, even with a more benign environment,” Brainard said.

Written by:  — With assistance from Craig Torres @Bloomberg

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