A Recession Suddenly Looks Like It Can Be Avoided
Abundant jobs have cushioned the blow of higher interest rates, raising the chance for a soft landing despite the Fed’s aggressive stand against inflation.
Still plenty of jobs.
Photographer: Megan Jelinger/AFP via Getty Images
Higher interest rates are no doubt causing pain to investors and consumers, but the economy has been able to handle them better than anyone thought possible six months ago. The worst-case fear was that the Federal Reserve would move too aggressively to correct inflation caused by pandemic distortions in the supply chain, wages and the housing market, and that as those kinks worked themselves out, rising rates would leave the economy crippled by soaring unemployment while inflation was still too high.
Last week’s steady jobs report should now put those fears to rest. The labor market has remained resilient enough to buy time for supply chains to heal and for many of the pandemic-related problems to ease. That’s providing a clearer path for the Fed to target inflation. Should the Fed feel the need to push the economy into recession in 2023, it will be due to an accurate read of structural inflation dynamics rather than data that’s been overly influenced by Covid shutdowns.