Fed Seeks Economic Soft Landing, Rarely Seen in Wild

U.S. unemployment is at rock-bottom levels. The stock market is near a record-high. Wages are finally rising and consumers are brimming with confidence. What could go wrong? Plenty, if the Federal Reserve missteps, as central banks often do in such heady times. The reason is that inflation, which has been unusually quiescent, could come surging back if the tight labor market overheats. The Fed hopes to avoid that by raising interest rates, but it could trigger a recession if it tightens credit too much. The ideal is what economists call a "soft landing." But getting this much-desired and often elusive condition can be more art than science.

In short, it describes the Fed’s main job these days: Slow the economy enough to prevent it from overheating, but not so much as to trigger a contraction in gross domestic product. Doing that takes a combination of smart policy-making and luck. Mark Zandi, chief economist of Moody’s Analytics Inc., likens it to “landing in the fog on an aircraft carrier that’s in the middle of choppy seas.”