“The Fed has Already Achieved a Soft Landing”

Please consider Stop Fretting About the Federal Reserve’s ‘Soft Landing’ by Alan Blinder.

There is much talk these days about whether the Federal Reserve can pull off the vaunted “soft landing,” reducing inflation to its 2% target without causing a recession. It isn’t easy.

Worrywarts fret over any uptick in the inflation rate, warning that the so-called last mile of inflation reduction could require tougher medicine than earlier ones. Growth worrywarts fret that the real federal-funds rate is rising automatically as inflation falls—and that a Fed that sticks stubbornly to a 5.5% nominal federal-funds rate for too long may produce a hard landing rather than a soft one.

Lost in this debate is something nearly everyone seems to be missing: The Fed has already achieved a soft landing. Something could go wrong in the future, but we’re already safely on the ground.

I was vice chairman of the Fed when we pulled off the celebrated “perfect” soft landing in 1994-95. What the Fed has achieved this time is more impressive considering where it started and the events since. This episode isn’t over. Things could still go wrong, and achieving a “soft landing” doesn’t mean that the plane never flies again. But we shouldn’t overlook the resounding success before us: that the U.S. economy has in fact already touched down softly.

CPI Month-Over-Month

(Click on image to enlarge)

CPI data from the BLS, chart by Mish

CPI Year-Over-Year

(Click on image to enlarge)

CPI data from the BLS, chart by Mish

Forgive me for pointing out Another Hotter Than Expected CPI Led by Shelter, Up Another 0.6 Percent

For the 29th consecutive month rent was up at least 0.4 percent. Shelter, a broader category, rose 0.6 percent. Food rose 0.4 percent.

New Definition of “Safely on the Ground”

The new definition of safely on the ground has core CPI running at 3.9 percent from a year ago.

I was wondering where Blinder’s Rah Rah Sis Cum Bah was coming from and if politics was somehow in play. Here are my fact check notes.

Alan Blinder Notes

• Blinder served on President Bill Clinton’s Council of Economic Advisers from January 1993 to June 1994
• Blinder was an adviser to Al Gore and John Kerry during their respective presidential campaigns in 2000 and 2004.
• In July 2008, Blinder wrote an article in The New York Times advocating “Cash for Clunkers”, implemented by the Obama administration during the summer of 2009

It would be shocking if Blinder did not try to help Biden with soft landing nonsense even as major problems loom ahead.

60 Minute Interview

Please consider a few snips from Fed Chairman Tells 60 Minutes US Fiscal Path is Unsustainable

60 Minutes: Was the Fed too slow to recognize inflation in 2021?

Powell: So in hindsight, it would’ve been better to have tightened policy earlier. I’m happy to say that. Really, it was this. We saw what we thought was that this inflation, which seemed to be mostly limited to the goods sector and to the supply chain story. We thought that the economy was so dynamic that it would fix itself fairly quickly. And we thought that inflation would go away fairly quickly without an intervention by us.

Here’s a fitting Alan Blinder Quote that I fully endorse: “Economists have the most influence on policy where they know the least and disagree most vehemently.”

This helps explain how and why the Fed blows bubbles of increasing amplitude over time.

Toto, I Don’t Think This is 2003 Anymore

To paraphrase Dorothy “Toto, I don’t think this is 2003 anymore.”

For discussion, please see 2024 Inflation Outlook: How Much Inflation Is Baked in the Cake?

I also think Powell is very wrong about the strength of the jobs market.

For discussion, please see Jobs Soar but Full Time Employment Is Barely Changed Since May 2022

60 Minutes did not ask about Tariffs. Since that is fiscal policy, Powell may not have responded.

For my take, please see Help for the Heartland? Trump Tariffs Failed the Mission

Tariff policy is highly inflationary at the levels supported by Trump and Biden but there was no discussion of tariffs in the 60 Minutes interview.

Hello Toto (Alan Blinder and Jerome Powell)

The tools that worked in 2003 are not what the Fed can rely on here.

Global wage arbitrage is gone. Just in time manufacturing is gone. Union wage contracts are soaring.

Home prices are out of sight.

Demographics require more spending on healthcare with fewer workers contributing to Medicare and Social Security.

And that does not address the Fiscal Cliff that Powell Sees but Blinder doesn’t.

Hello Mr. Blinder, the plane has not landed and it does not even have wheels. This is not 2003, we are not in Munchkinland or Oz, and we are not somewhere over the rainbow.

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