Can the Feds Make a Soft Landing?
The biggest question in economics today is this: Can the Fed engineer a soft landing?
A year ago the consensus view was that the economy would slip into a recession in 2023. We pushed back hard against this view, in large part because both the trends in the labor market and consumer spending indicated to us a broader expansion.
The big question this left open was the response of the Federal Reserve. If the economy kept expanding, it stands to reason that the Fed would keep raising rates. Fed officials, however, indicated that they were in the mood to stop rate hikes and keep rates where they were.
Maybe We Can?
Here’s the latest from Bloomberg’s Bill Dudley, formerly the head of the Federal Reserve Bank of New York:
Can the Federal Reserve engineer a soft landing, in which it defeats excessive inflation without tipping the US economy into recession? This week, Fed officials will offer important clues as to whether that’s achievable.
The Sept. 19-20 meeting of the policy-making Federal Open Markets Committee isn’t likely to deliver any interest-rate surprises: Officials have amply signaled that there won’t be any further increase this time around. That said, they will update the Summary of Economic Projections, which lays out how they expect growth, inflation and unemployment to develop given appropriate monetary policy. Those projections haven’t been consistent with the soft landing that many in markets are already predicting, so any changes will be significant.
That seems like a very clear message that the Fed will not raise its interest rate target tomorrow but instead will project more hikes in the future.