Managing the $20 trillion US economy is kind of like driving a truck filled with gasoline down a mountain road with no brakes. Sometimes, in order to avoid a truly horrific accident, you have to run off the road, where you risk cracking an axle or whatever (I’m not good at cars, or writing, or writing about cars). Then you have to repair the truck, get it back on the road and start the process all over again.
The Federal Reserve is currently in the running-the-truck-off-the-road phase of the cycle, and today it contributed to that effort by raising its key policy interest rate by half a percentage point, the biggest wheel-jerking in 22 years. It also promised to dump assets starting next month, and Chairman Jay Powell warned more 50-basis-point hikes were on the way.
The only question now is how violent the resulting crash will be. Every so often, the truck rolls gently into a sunlit meadow filled with wildflowers and bluebirds. The Fed has a nice snack and gets back on the road. Such a soft landing, John Authers notes, is exceedingly rare, happening only three times in the past 65 years. All the other times, an economic axle-cracking of some sort followed.
But none of those rate-hiking campaigns involved a pandemic and a war and a global supply-chain seizure and a jorts revival. Such nightmares are causing economic growth scares around the world that might calm inflation enough that the Fed doesn’t have to run the truck straight into a tree this time, John writes. Still, it might not be a bad time to get better at fixing cars. It’s a recession-proof business after all.