The U.S economic history points to a hard landing.

The U.S economic history points to a hard landing.

The Fed has never tightened its monetary policy enough to raise the unemployment rate by 0.5 percentage points or more without triggering a recession.

According to Sahm’s rule, when this trigger is reached, the next stop is a deeper recession, in which unemployment rises by at least 2 percentage points.

Like Wile E. Coyote falling off a cliff, the U.S. economy has a lot of momentum, but support quickly disappears. Landing will not be a pleasant experience.

If you’re still hopeful that the Federal Reserve can engineer a soft landing for the U.S. economy, forget it. A recession is inevitable within the next 12 to 18 months.

In their latest set of projections, the Fed’s central bankers presented a benign scenario, in which the economy continues to grow at a moderate pace and unemployment rises only slightly, even as the central bank significantly raises interest rates to control inflation.

While the Fed’s forecasts have become more plausible over time, I see several reasons to expect a much tougher landing.

First, persistent price increases have forced the Fed to shift its focus from supporting economic activity to reducing inflation to its 2% target.

The central bank’s employment mandate is now subordinate to its inflation mandate.

This can be seen both in central bank Chairman Jerome Powell’s performance at last week’s press conference and in the June Federal Open Market Committee statement, which eliminated that the labor market “would remain strong.”

Joe Biden Says U.S. Recession Could Be Avoided

Second, the new approach to price stability will be relentless. Central bankers recognize that failing to get inflation back down would be disastrous: inflation expectations would likely unanchor, requiring an even greater recession later on.

From a risk management perspective, it is better to act now, whatever the cost in terms of jobs and growth. Powell doesn’t want to repeat the mistakes of the late ’60s and ’70s.

Please Support Alles Europa News