![]() ![]() How optimistic is it to expect inflation will be controlled without requiring a recession? In other words, how optimistic is it to dream of a glide to a Goldilocks economy? It’s going to be difficult. In other words, the hope is that in its war on four-decade high inflation, the Fed will slow down the US economy gently without letting it tank. In this perfect state, steady economic growth prevents a recession however, growth is not so hot as to stoke inflation. What they refer to is an economy that’s not too hot and not too cold but just right. In this context, commentators are expressing the hope that the Fed can still pull off a return to “Goldilocks". ![]() But most importantly, all this will be accomplished without having the US economy in recession, or a material rise in unemployment. This, in turn, would nudge wages down, resulting in lower and stable inflation. ![]() When Powell says that soft or softish landing is what the Fed is hoping for, although it can’t guarantee it, he means to say that demand in the US would be cooled off and brought closer to supply. Meanwhile, Powell has cautioned that the Fed is unlikely to blink until the historically-high US inflation, controlling which US President Joe Biden has said is the top economic priority, is brought under control. The global markets and economy discourse has both the narratives running in parallel. Investors around the world are weighing the odds of the US tipping into a recession, triggering, in the worst-case scenario, a full-blown global recession, against the hope that the Fed’s belated attempts, more aggressive than earlier expected, to clamp down on high US inflation will after all result in a soft-or at least softish, a word Fed Chief Jerome Powell used-landing. ![]()
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