The buffer is shrinking

If the economy is a mountain climber on a ridge, “there are times when that ridge is extremely broad and even a major event isn’t going to knock the economy off the ridge,” said Glenn Kelman, chief executive of real-estate brokerage Redfin.

Now, “it feels like the ridge has gotten much narrower,” he said.

Two years ago, the Federal Reserve jacked up interest rates at the fastest pace in decades to combat inflation that it initially misdiagnosed as likely to be short-lived. Companies were scrambling for workers, offering large raises and bonuses, and prices were soaring. Investors, economists and some Fed officials thought higher unemployment would probably be needed to bring supply and demand back into balance.

Businesses aren’t shedding workers, though pressures to do so will mount if a longer period of higher rates erodes margins and profits slump.