No reason US economy will experience a major downturn this year or in 2024
While inflation is still above the Federal Reserve’s 2% target, it could stabilize at 3-4% over the next 12 months.
What constitutes a “soft landing” remains open. As several critics have argued, the Fed is unlikely to achieve its goal of bringing down inflation to 2% by 2024 without causing a sharp increase in unemployment and drop in GDP.
But a soft landing might best be defined as a gradual slowdown of output growth and employment to levels below their potential and natural rates, accompanied by a decline in inflation.
A severe recession might have enabled the Fed to achieve its stated goal of bringing down inflation to 2% this year. But if avoiding the social costs of a serious contraction means stabilizing inflation at 3-4%, with 2% as a longer-term goal, that seems like a worthwhile tradeoff. Such an outcome should be considered a soft landing.
Jeffrey Frankel Project Syndicate 17 July 2023
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