The economy’s best-case scenario has become more possible

“The 360” shows you diverse perspectives on the day’s top stories and debates.

What’s happening

Consumer prices fell It has been more than two years since the last month. This gives hope that the persistent inflation that has plagued America’s economy might finally be under control.

Although costs were up 6.5% in December, compared to a year ago, the rate of rise has been steadily declining for six consecutive months after reaching a four-decade high this summer.

“We still have more work to do, though, but we’re clearly moving in the right direction,” Last week, he said this in an address. “There’s more breathing room in store for American workers and families.”

Since it became obvious that prices would not fall on their own after the shock from the pandemic, reducing inflation has been an economic policymaker’s top priority. The Federal Reserve is the Federal Reserve’s most powerful tool in this regard. Over the past year. Interest rate hikes have proven successful at taming inflation in the past — because they effectively decrease the amount of money moving around the economy — but they Higher unemployment. It took It was necessary to control the runaway inflation of late 1970s that led to a devastating recession in 1980.

But, so far, that hasn’t happened in today’s economy. Unemployment is declining, not rising. Throughout 2022. An estimated The unemployment rate fell to 3.5% last January, matching the record set before the coronavirus pandemic.

Why there’s debate

These two simultaneous positive trends — declining inflation along with resilient employment — has The U.S. may defy convention and have a lot of experience. in which the economy’s ills can be tamed without creating a lot of pain for working Americans.

Optimists believe the “Goldilocks” scenario is plausible in part because, unlike previous instances, today’s economic turbulence is the largely result of major external factors — pandemic disruptions and Russia’s invasion of Ukraine among them — that are stabilizing over time. Others believe that the job market is so strong at the moment that even a small increase in unemployment in coming months would still put workers in good health, particularly if the prices drop.

However, the majority of economists see a recession coming in the near future. Their reasons are varied. Many economists believe that even though the latest data is encouraging, there’s still much to be done to bring down inflation. The path to that goal will also lead to job loss. Others claim that worrying shifts within sectors such as manufacturing and housing are indicators of a financial downturn.

Many on the political left argue that a recession is entirely avoidable, but only if the Federal Reserve stops raising interest rates and allows promising trends to do their work — a prospect that appears unlikely in the near future.

What’s next

The Federal Reserve is When it meets later in the month, however, possibly by a smaller increase than previous increases. It could take several months to determine if employment can be sustained in the face higher interest rates.

Perspectives

A soft lAnding is likely unless there’s another major economic disruption

“It looks like the Fed has largely accomplished its mission of taming inflation, without bringing on a recession. Plenty of things can mess up this picture, like another surge of Covid or an escalation of the war in Ukraine, but for now, the economy is looking very good.” — Dean Baker,

There’s simply no way to tame inflation without spiking unemployment

​​A true recession entails job losses — sooner or later. … We’ve already seen jobs losses in and But, there are more coming even though the monthly employment numbers still look great. Our recession forecast hasn’t wavered. We should all be prepared.” — Lakshman Achuthan and Anirvan Banerji,

The economy will be driven into recession by policymakers unnecessarily

“It’s time for the Fed to step back and allow the economy to glide in for the soft landing that everyone wants. Unfortunately, the Fed thinks it can’t do that. It can’t show any weakness. It feels trapped because its policy relies on perceptions of strength, not on actual victories on the battlefield of the economy.” — Rex Nutting,

Even if there’s a recession, it is likely to be mild.

“My own prediction is indeed for a softish landing: Inflation does seem to be coming down, and while we might not completely avoid a recession, if we have one it will probably be mild.” — Paul Krugman,

We shouldn’t necessarily be rooting for a soft landing

“The problem with a soft landing is that it will drag out this inflation cycle. That means more months (or years) where wages won’t keep up with rising prices, pushing some households further into debt. … The longer the slog out of inflation, the more households will burn through their savings.” — Allison Schrager,

A recession is the most likely outcome, but it’s not inevitable

“The economy is surely slowing, but there is a possibility that employment growth will not turn negative unless the Fed persists with heavy half-point increases in interest rates over the next few months. Yes, Goldilocks may still have a chance, but it is a slim one.” — Bruce Yandle,

Today’s economic situation is so unprecedented, any outcome is possible

“If you asked me the question of could there be a soft landing? Yes. Any question that begins with ‘could’ about today’s economy, which is just so unpredictable, is going to get the answer yes.” — Jason Furman, economist, to

The elites are too motivated to create a rise of unemployment

“Low unemployment means an unruly workforce with the leverage and confidence to unionize. Employers will make less money if employees earn higher wages. A high-demand economy with mass affluence tends to have higher inflation. This is effectively a huge transfer of wealth from debtors to creditors. … So the uncomfortable truth is that the top 1 percent generally prefer a slower-growing economy with higher unemployment to its opposite.” — Jon Schwarz,

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Photo illustration: Jack Forbes/Yahoo News; photos: Getty Images (2)

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