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With seven interest rate increases last year, two so far in 2023, and two U.S. bank failures, the U.S. is still not currently in a recession. President Joe Biden continues to claim progress on the labor market and is counting on Fed Chairman Jerome Powell to strike the right balance on jobs and inflation to head off an economic downturn.
Though Powell still thinks a soft landing is possible, Straight Arrow News contributor Matthew Continetti argues it’s highly unlikely given Powell and Biden’s shoddy judgment and poor track record.
Biden, Yellen, and Federal Reserve Chairman Jerome Powell want a soft landing. They are after the magic formula that will quell inflation and avoid recession. They will be disappointed.
No one likes inflation — it lowers the standard of living. But the Federal Reserve solution — a contraction of the money supply through higher interest rates — is nasty too. High-interest rates can cause a recession or something worse. Now Biden and the Fed are caught in a stimulus trap. Higher interest rates increase the likelihood of financial instability, while keeping rates pat or cutting them will prolong the inflation. Doing nothing will perpetuate the current mix of declining standards of living amidst periodic financial instability.
Nor are there other options. Supply side measures such as deregulating energy and reducing means-tested income transfers are off the table in a Democratic administration. Immigration is not about to be liberalized. Trade barriers won’t be reduced.
Biden, Yellen and Powell have gifted America with another emergency measure that will last long after the crisis subsides. Republicans are eager for a piece of the action. After all, why did Gavin Newsom and Silicon Valley tech giants get this guarantee while midsize banks in rural areas do not? Rather than limit and sunset the deposit backstop and force market discipline and reassert the Feds commitment to price stability, the same team that brought America the worst inflation in a generation is entangling itself further in a key sector of the economy. It would be foolish to trust in their judgment. Look at the record.
Soft landing? Afraid not. Brace for impact.
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