The Federal Reserve has landed a hot U.S. economy softly before. It has also helped usher in a recession and nearly doubled unemployment.
Which will be this time? Our current Fed captain hasn’t offered too many opinions about how we might land, but he’s sounded modestly optimistic at times this year.
“The economy can return to 2% inflation without a really significant downturn or a really big increase in unemployment,” Fed Chairman Jerome Powell said in early February. “Many, many forecasters would say it’s not the most likely outcome. I would say there’s a chance of it.”
Since then he hasn’t given us much more to work with. Tray tables up and heads between our knees? Or just enjoy the view from 30,000 feet?
Interest rates expected to rise again to further cool inflation
Powell and the committee have seen several important data points – including slowing job growth and inflation – in recent days before this week’s committee meeting, but many say the Fed isn’t done and at least one more rate increase is in the offing.
So probably the best we can do right now is look at where hard and soft landings left our economy and our finances in the past.
What has driven the Fed to raise interest rates
soft landing.
How those Fed’s economic challenges compared
according to LendingTree. That’s raised monthly interest charges to $140 – about a $55 monthly increase – on the average American’s $6,965 credit card balance.
another 0.25% during their July meeting, which concludes Wednesday.
That could continue the troubling direction of the housing market, which was weighed down by higher mortgage rates throughout 2022. Mortgage rates have actually fallen a bit in July since nearly reaching 7% this month.
That leaves new home owners facing steeper mortgage costs than they were last year.
according to a Bankrate calculator.
What’s next now?
“The labor market remains very tight,” Powell told reporters in his prepared statement after the Fed meeting in June. “While the jobs-to-workers gap has declined, labor demand still substantially exceeds the supply of available workers.”
That and other statements have sounded more early ’80s Fed than the mid-90s Fed.
Why it could be like the early ’80s: High inflation drove the Fed to its rate-change decisions. Inflation has slowed, but Powell and the Fed seem squarely focused on a potentially inflationary tight job market in which workers’ pay increased by 7% in 2022. Those increases have moderated this year.
Federal Reserve economists have projected that unemployment could rise from its current 3.5% to over 4% this year as a result of the rate increases. That could also tip the economy into a recession.
Why it could be like the mid-90s: The strength of the labor market could also be the reason we don’t dip into a recession. Amid high-profile tech layoffs, the economy keeps adding jobs – but more slowly. We’ll get a first look on Aug. 4 at how many new hires companies made in July.
Source: usatoday.com