A Fed soft landing for jobs means something else has to crack; so far that has not been the case
The healthy finances of US banks, businesses and households, heralded during the pandemic by Federal Reserve officials as a source of resilience, may pose an obstacle to fighting inflation as central bankers raise interest rates in an economy so far able to pay the price.
In describing their aggressive shift to tighter monetary policy, Fed officials say they hope to suppress the economy without destroying jobs, with rising interest rates slowing things down enough for companies to reduce the current high number of job vacancies while avoiding layoffs or a drop in income Household.
But that means the pain of controlling inflation should fall primarily on owners of capital via a slowing housing market, higher corporate bond rates, weaker securities and a rising dollar to make cheaper imports and encourage domestic producers to keep prices low.
Economists, including current and former Fed officials, note that unlike previous cycles of Fed rate hikes, there is no obvious weakness to exploit or asset bubble to burst to make quick work of. lower inflation – nothing like the heavily overvalued real estate markets of 2007 or the overvalued Internet stocks of the late 1990s to give the Fed more impact on its expected rate hikes.
The adjustment to Fed policy tightening has been rapid by some measures. But it spread moderately across a range of markets, none catastrophically, with little impact yet on inflation or consumer spending.