Your Evening Briefing: Crosswinds Imperil Powell’s Soft Landing

Federal Reserve Chair Jerome Powell reckons the US economy can, in the aftermath of an inflation fight that just might be coming to an end, skirt a recession. While much of the financial world has spent the past year saying one was looming, Powell has so far done exactly that. But it seems like now, perhaps more than before, his hoped-for soft landing faces some tough odds. The confluence of a regional banking crisis and its fallout and a Republican game of chicken with the national debt may militate against the economy emerging unscathed. In Powell’s view, the strength of American labor markets—still at a half-century record—is smoothing the way for a gentle touchdown. “It’s possible that this time is really different,” the Fed chief said last week. Still, a labor market that stays hot means the Fed may have to hold rates higher for longer—and that doesn’t bode well for dodging a downturn. For the central bank, one thing is clear: there’s a lot of turbulence ahead.

Companies from automakers to hoteliers keep on sacrificing sales volume—sometimes by design, sometimes by necessity—in favor of higher prices, a dynamic that will test the Fed’s effort to rein in inflation. The latest set of earnings show businesses aren’t likely to walk away from a strategy being called “price over volume,” adopted by certain industries at the height of the pandemic when supplies and labor were both tight.