WASHINGTON, DC – Many economists and commentators have been popping champagne corks and toasting the US Federal Reserve for having steered the economy toward a soft landing.
There’s just one problem: the plane has not landed yet.
What would a soft landing look like? Inflation would remain at or adequately close to the Fed’s 2% target for a sustained period, while employment and economic output would increase at rates low enough not to put upward pressure on prices, but also high enough to avoid recession.
Yes, the US economy has slowed considerably, and with much less economic hardship than many – including me – feared would occur. In 2021, the economy added an average of 604,000 net new payroll jobs each month. In 2023, average net monthly job gains had fallen to 251,000. Likewise, consumer-price inflation has cooled significantly. Using the Fed’s preferred measure – the personal consumption expenditures (PCE) price index – inflation (on a year-on-year basis) peaked at 7.1% in June 2022 and fell to 2.4% by January 2024. During that period, the unemployment rate never surpassed 4%.
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