Federal Reserve Chair Jerome Powell is projecting confidence in the U.S. economy's resilience, forecasting growth above 2% even as prominent economists warn of recession and markets price in slower expansion ahead.
Speaking at a conference in Washington, Powell described the economy as "quite resilient" and said he expects GDP growth to continue exceeding the Fed's long-term potential growth estimate of roughly 1.8%. That's a notably optimistic stance from a central banker whose credibility took hits after repeatedly calling inflation "transitory" in 2023-2024.
The data backing Powell's view: Q1 GDP came in at 2.3%, the labor market added 215,000 jobs in March, and consumer spending—while slowing—remains positive. Unemployment sits at 3.9%, historically low and close to what economists consider full employment.
But here's where Powell's optimism collides with reality. Inflation, the metric he's been fighting for two years, remains stubbornly above the Fed's 2% target. Core PCE, the Fed's preferred measure, registered 2.8% in March, and recent ISM price indices suggest upward pressure rather than continued disinflation.
"Powell is essentially arguing that we can have above-trend growth without reigniting inflation," said Roberto Perli, economist at Piper Sandler. "That's possible, but it requires productivity gains we haven't consistently seen since the late 1990s."
The credibility question looms large. Powell and his Fed colleagues spent much of 2023 insisting inflation would prove transitory, only to execute the most aggressive rate hiking cycle in 40 years when prices kept climbing. Inflation peaked at 7.2% in June 2023, forcing the Fed to raise rates from near-zero to 5.5% by March 2024.
