Economic optimism has been in short supply over the past year. Soaring inflation translated to sticker shock for many Americans from the gas pump to the grocery store. To get prices under control and keep the economy from spinning out, the Federal Reserve stepped in with a series of rate increases meant to pump the brakes.
But as hike after hike arrived, some economists began to worry the economy would not slow gracefully and instead grind to a screeching halt and plummet into recession.
Could a "soft landing" be in sight? Here's what we know.
What is a 'soft landing'?
Despite plenty of gloomy predictions, the U.S. economy has not yet fallen into a recession. That would require a "significant decline in economic activity that is spread across the economy and lasts more than a few months," according to the National Bureau of Economic Research, the nonprofit that calls recessions.
For more than a year, the Fed has raised rates aggressively to wrestle down inflation but has slowed the pace recently as its key rate hit a 16-year high, partly in hopes of avoiding an outright downturn in the economy. The hope is to usher in a "soft landing," or a slowing of the economy without significant increases in unemployment or an economic contraction. Essentially, if the Fed is in the cockpit, a soft landing wouldn't jolt the American economy when the plane hits the tarmac.
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Will the economy have a soft landing?
The Fed will meet Sept. 19 and 20. In July, the Fed announced the 11th rate hike since March of 2022. Chair Jerome Powell said “it's certainly possible we would raise (rates) again at the September meeting and it's also possible we would hold steady."
Treasury Secretary Janet Yellen told Bloomberg in September she was "feeling very good" about a soft landing for the U.S. economy.
Investors seem less jumpy about a recession. That's probably because of healthy job numbers and consistently falling inflation along with steady consumer spending. Though a "soft landing" is not yet guaranteed, compared with earlier projections banks seem to feel it is more in reach. “We have greater resiliency within the economy than I would have anticipated at this point in time, given the extent of rate increases we’ve gotten,” said Matthew Luzzetti, Deutsche Bank’s chief U.S. economist.
Some economists are warning it is not so simple, however. Robert Sockin, a global economist at Citi, told the Financial Times it would be “historically unusual” for central banks to get inflation to a target rate without “a meaningful loosening in labour market conditions”.