2. Has the Fed ever accomplished this?
Arguably once, in 1994–1995. Under then-Chair Alan Greenspan, the central bank doubled interest rates to 6% and succeeded in slowing economic growth without killing it off. The tighter credit did have adverse consequences, though. It led to huge losses for bond market investors and contributed to the 1994 bankruptcy of Orange County, California. Mexico was also compelled to seek a bailout from the US and the International Monetary Fund (IMF).
Federal Reserve (Fed) Chair Jerome Powell and his colleagues are embarking on a delicate task: They’re trying to use higher interest rates to bring down sky-high inflation without crashing the US into a recession. The ideal result would be what economists call “a soft landing.” Steering the US economy toward one has been made immeasurably harder by Russia’s invasion of Ukraine and the aftershocks that’s triggered in global energy, commodity and financial markets.
1. What’s a soft landing?
In short, it describes the Fed’s main job these days: Slow the economy enough to curb demand and rein in decades-high inflation, but not so much as to trigger a contraction in gross domestic product and a rise in unemployment. Doing that takes a combination of smart policy making and luck.
