In the fight against inflation, the Federal Reserve can yet thread the needle by engineering a soft landing—simultaneously cooling off an overheated economy without crashing the labor market.

In an interview with 60 Minutes, broadcast on Sunday, the head of the International Monetary Fund said conditions in the U.S. were looking a lot less dire than even just a few months ago.

“At least based on the data we have today, we think the U.S. will be able to go through the year narrowly avoiding falling into recession,” IMF managing director Kristalina Georgieva told the CBS weekly news program. “That means the possibility [is there] for a soft landing for the United States.”

Back in October, Georgieva’s organization was singing a very different tune.

It forecast countries accounting for as much as a third of global output were poised to contract in 2023, warning the “worst is yet to come.”

In the IMF’s latest report published last week, it predicted global inflation had peaked and was now set to ease to 6.6% in 2023 and 4.3% in 2024, down from 8.8% in 2022.

Yellen also downplays the risk

Georgieva’s newfound optimism was echoed on Monday by the U.S. government.

Speaking to ABC’s Good Morning America, Treasury Secretary Janet Yellen downplayed the risk of the U.S. economy contracting.

The former Fed chair now in charge of U.S. fiscal policy cited Friday’s massive rise in January nonfarm payrolls and historically low unemployment rate as signs of a robust labor market.

“You don’t have a recession when you have 500,000 jobs and the lowest unemployment rate in more than 50 years,” Yellen told the program.

Given such robust U.S. jobs market data, the IMF’s Georgieva urged Fed Chair Jay Powell to oppose any pressure from Wall Street to begin rolling back its interest rate hikes.

In her view, continuing to stay the course was crucial until the trajectory for inflation pointed downward.

“The Fed has to be very careful not to start easing financial conditions prematurely,” the Bulgarian economist said.

One black swan cannot be dismissed—a potential U.S. debt default

This would naturally mean the red-hot labor market will have to weaken somewhat to prevent a vicious circle of inflation leading to higher wage demands that then fuel further inflation.

But the threat of layoffs localized primarily in the tech sector rippling through the broader economy appeared to be over.

“Let’s be very clear,” said the IMF chief, “we are not scared of some big unemployment wave sweeping through the United States.”

There was one American black swan that concerned Georgieva, however, and that was ongoing negotiations in Washington over raising the federal government’s debt limit, currently sitting just shy of $31.4 trillion.

Yellen warned House Speaker Kevin McCarthy last month he needs to raise the ceiling before June to prevent the U.S. from defaulting on its obligations to creditors.

According to the IMF boss, if there’s one thing that a once-in-a-century pandemic and Russia’s invasion of Ukraine should have taught us by now, it’s that the seemingly unthinkable can happen.

“This is why it is very important for everyone concerned to take this conversation very seriously,” she argued. “If people don’t like inflation today, they are not going to like at all what may happen tomorrow.”