Prospects for a soft landing?
I have a new piece at The Hill, discussing the prospects for a soft landing:
A useful definition of a soft landing would be a period of at least three years of economic growth with low inflation even after the labor market has full recovered from recession. Surprisingly, there is no evidence that the United States has ever achieved a soft landing, at least as far back as we have economic data. . . .
Oddly, this is not the case in other countries, where soft landings are not particularly unusual. Japan has had extended periods of very low unemployment and low inflation. A notable example of a soft landing occurred in Britain during 2001-08, when unemployment stayed in the 4.7 percent to 5.5 percent range for seven years and inflation remained relatively low. Australia had no official recessions between 1991 and 2020.
Note that the US has never even achieved a soft landing when conditions were favorable, such as a period when inflation and NGDP growth were relatively moderate and hence a tight money policy was not needed. Today, we have very high inflation and NGDP growth, which makes it much more difficult to achieve a soft landing. It’s like trying to land a 747 on an aircraft carrier in the midst of a typhoon.
If three years from today the US has roughly 3.5% unemployment and roughly 2% inflation, then we could say that the Fed achieved a soft landing. Unfortunately, that doesn’t seem very likely.
PS. Without Covid, I think we might have achieved a soft landing in the early 2020s. But we’ll never know.