Is it possible that the economy has landed softly enough?

Elizabeth Trovall Mar 11, 2024
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Federal Reserve Chair Jerome Powell speaks before a House Financial Services Committee hearing on monetary policy on March 6. Mandel Ngan/AFP via Getty Images

Is it possible that the economy has landed softly enough?

Elizabeth Trovall Mar 11, 2024
Heard on:
Federal Reserve Chair Jerome Powell speaks before a House Financial Services Committee hearing on monetary policy on March 6. Mandel Ngan/AFP via Getty Images
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Last week, Federal Reserve Chair Jay Powell told a congressional committee that we shouldn’t expect any kind of soft landing victory lap, when and if the time comes that the Fed decides it has finally beaten inflation and avoided a recession. It’s been a bumpy road, and it seems that the Fed recognizes that getting to 2% is going to take a while.

But exactly how much inflation do we need right now? Gross domestic product is growing and the labor market is strong. So is it possible that the landing we have right now is soft enough?

The economy can run too hot, too cold or it can be just right. And the 2% inflation goal is what policymakers decided is right.

“It’s kind of hard to justify 2%. If you were starting from scratch, they might pick a different number,” said David Wessel, a senior fellow with the Brookings Institution.

But 2% is the target. And even though inflation is above that right now, “we’re pretty close to that nirvana of not too hot, not too cold,” Wessel said. “I’m hoping that it’ll get a little cooler over the next few months.” 

That sounds kind of like a soft landing.

“I think it’s definitely feeling soft,” said Aditi Sahasrabuddhe, a professor at Brown University. She said the economy has been performing well and growing over the past year. 

“In that sense, I think the thing to consider is then what is the optimum inflation level if we can manage stable and robust growth without overheating an economy?” she said.

That could be something like 3%, said Zach Bethune, an economist at Rice University. But what really matters is that there’s a consistent target. 

“The most important fact is that in inflation targets, some number which everyone can agree and coordinate on, that is the most important feature of what the Fed is trying to achieve,” Bethune said.

Just because everyone has agreed on this target doesn’t mean it will never change. 

“But across decades, across, big, big state demographic shifts in the economy or, you know, import-export shifts, I think we’d want some kind of flexible, somewhat flexible inflation target,” he said. 

But changing the target could be seen as a dramatic move. For now, consumers and the Fed are sticking with 2%. 

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