'Should we fear a recession? Not necessarily,' writes Joel L. Naroff. 'Sometimes, wanting perfect Fed policy may get in the way of good Fed policy, and the consequences could be ugly.'
to slow inflation, most people are wondering whether the U.S economy will go into recession. The hope is that the Fed does what it hasn’t done before: Fine tune the economy carefully enough that it engineers a so-called soft landing.For the Fed, price stability is Job 1.
Unfortunately, no one really knows how slow things need to get to moderate inflation. Do too little and inflation remains too high, causing pain across many segments of the economy. Do too much and you whip inflation, but the economy usually winds up in recession. Recessions can be mild. The 2001 recession, which lasted eight months, led to a relatively modest rise of 1.5 percentage points in the unemployment rate and almost no decline in GDP. Nevertheless, inflation dropped sharply in that short period of time.Though the Fed cannot control the type of recession it might create, a recession does not have to be catastrophic, and it would still reduce inflation.
And with tight labor markets comes rising wages. And with rising wages comes rising production costs. And with rising production costs comes rising prices.
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