Not much, say most economists.
A great deal, according to other economists
Inflation might be running at about 4.5% or 5%, or as low as 2.5%, according to various measures of underlying inflation.
To get it to 2%, the Fed will need to cool the labor market and lower wage growth, currently running around 5% to 7% a year
Mr. Powell said Wednesday that the natural unemployment rate may have risen “materially,” at least temporarily, although he didn’t put a number on it. Since before the pandemic, Fed officials have put the long-run unemployment rate—similar to the natural rate—at around 4%.
Stephen Cecchetti thinks the Fed will probably need to increase its policy rate above 4.5%, and push unemployment to between 5.5% and 6%, to control inflation.
Tom Fairless WSJ 31 July 2022
https://www.wsj.com/articles/lower-inflation-likely-requires-higher-unemployment-how-high-is-the-question-11659276181
Investors have lately become strangely optimistic that the Federal Reserve won’t have to tighten monetary policy much further,
... bidding up stocks and bonds amid hopes that the Federal Reserve will soon get inflation under control.
This wishful thinking is both unfounded and counterproductive.
All told, the outlook hasn’t changed. Inflation is too high, the labor market is too tight and the Fed must respond — most likely by pushing the economy into an actual recession, as opposed to the two quarters of minor GDP shrinkage that has occurred so far.
Wishful thinking in markets only makes the job harder, by loosening financial conditions and requiring more monetary tightening to compensate.
Bill Dudley Bloomberg 1 augusti 2022
One interpretation of the striking contrast between the economy and markets in July
... is that the bad economic news will lead the Fed to pause its monetary tightening early and then lower interest rates quickly and perhaps even suspend its plans for balance sheet contraction — thereby returning to a policy pattern that, for years, loosened financial conditions and drove asset prices higher.
Given the amount of liquidity that has been injected in recent years, a lot of it is still sloshing around. The level of cash holdings by investors has been high, and the willingness to take risks is still considerable once a green light flashes on.
Mohamed A. El-Erian Bloomberg 1 August 2022
En mjuk landning - möjlig men osannolik. Wolf och Dudley
Are Interest Rates at Neutral? Markets Certainly Hope So
Mohamed A. El-Erian Bloomberg 28 juli 2022
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