The Federal Reserve Board, under Chairman Jerome Powell, seems poised to engineer the soft landing that it hoped to achieve by cooling inflation without triggering a recession, The New York Times reported.

The Fed kept interest rates unchanged at 5.25 to 5.5 percent in its final policy decision of 2023 on Dec. 13, and it forecast cutting borrowing costs three times in the coming year.

Inflation is now at 3.1 percent on a yearly basis, down from a 9.1 percent peak in 2022, while growth, consumer spending and hiring remain strong. That combination has come as a surprise to economists, many of whom predicted that a cooling job market would cause a rise in unemployment.

The Fed is hoping for “a continuation of what we have seen, which is the labor market coming into better balance without a significant increase in unemployment, inflation coming down without a significant increase in unemployment, and growth moderating without a significant increase in unemployment,” Powell said yesterday, the Times reported.

“The Fed right now looks pretty dang good, in terms of how things are turning out,” Michael Gapen, head of U.S. Economics at Bank of America, told the Times.

The moderation in inflation is attributable, in large part, to the restoration of supply chains, which has eased shortages in key goods such as cars, as well as other goods and services, almost returning spending to what looks like pre-pandemic levels.

The pandemic problems that the Fed had expected to prove temporary did fade, but it took years rather than months.

“As a charter member of team transitory, it took a lot longer than many of us thought,” Richard Clarida, the former Fed vice chair who served until early 2022, told the Times, noting that circumstances have adjusted.

The question now is whether inflation will continue to cool even as the economy continues to improve. The Fed expects growth to slow substantially to 1.4 percent next year, from 2.6 percent this year, based on fresh projections.

“Certainly they’ve done very well, and better than I had anticipated,” William English, a former senior Fed economist who is now a professor at Yale, told The Times. “The question remains: Will inflation come all the way back to 2 percent without more slack in the labor and goods markets than we’ve seen so far?”

“We don’t know how long it will take to go the last mile with inflation,” said Karen Dynan, a former Treasury chief economist who teaches at Harvard, in an interview with the Times.

Given that uncertainty, setting policy next year could prove to be more of an art than a science: If growth is cooling and inflation is coming down, cutting rates will be a fairly obvious choice. But what if growth is strong? What if inflation progress stalls but growth collapses?

Powell acknowledged some of that uncertainty this week. “Inflation keeps coming down, the labor market keeps getting back into balance,” he said. “It’s so far, so good, although we kind of assume that it will get harder from here, but so far, it hasn’t.”