No recession—inflation has come down

Ben Casselman and Jeanna Smialek, "Could the Recession in the Distance Be Just a Mirage?," New York Times, 7-19-2023, https://www.nytimes.com/2023/07/19/business/economy/economy-soft-landing.html?name=styln-fed-day®ion=TOP_BANNER&block=storyline_menu_recirc&action=click&pgtype=LegacyCollection&variant=undefined-- 嘉玮

Inflation has come down.

Economists have become more optimistic for two main reasons.

The first is inflation itself, which has cooled rapidly in recent months. The Consumer Price Index in June was up just 3 percent from a year earlier, compared with a peak of 9 percent last summer. That is partly a result of factors that are unlikely to repeat — no one expects oil prices to keep falling 30 percent per year, for example.

But measures of underlying inflation have also shown significant progress. And consumers and businesses appear to expect price increases to return to normal over the next few years, which makes it less likely that inflation will become embedded in the economy.

Cooling inflation could allow the Fed to continue to slow its campaign of interest rate increases, or perhaps even to stop raising rates altogether earlier than planned. That could reduce the chances that policymakers go too far in their effort to control inflation and cause a recession by mistake.

“Things have been going in the direction you would need them to go in order for you to get a soft landing,” said Louise Sheiner, a former Fed economist who is now at the Brookings Institution. “It doesn’t mean you’re guaranteed to get it, but certainly it’s more likely than if inflation was still 7 percent.”