The Fed’s Dream of a Soft Landing Is Facing a Triple Threat

Data showing that inflation in the US is receding while the job market remains strong are stoking almost giddy expectations that the Federal Reserve can pull off a soft landing. Unfortunately for Jerome Powell and his crew, three different events are converging in a way that could knock the US economy off its glide path: an historic autoworkers strike, an expected government shutdown and the scheduled resumption of student loan repayments.

The triple hex could crimp growth in the fourth quarter—by a little or a lot, depending on the extent of the fallout. Economists at Goldman Sachs Group Inc. estimate the expansion could slow to 1.3%, from 3.1% in the third quarter, on an annualized basis. Gregory Daco, chief economist at the advisory company EY-Parthenon, calculates that the combination of events would equate to a 0.8-percentage-point drag on growth; factor in lower spending on services and business investment, which are already under pressure, and growth could slide toward 0%, he says. On X (formerly Twitter), Diane Swonk, chief economist at KPMG LLP in Chicago, warned that a prolonged work stoppage in autos—a sector that accounts for about 3% of gross domestic product—would precipitate an economic contraction in the final quarter of the year.