Federal Reserve Starts Pursuit Of A 'Soft Landing'

The Federal Reserve will launch one of the most difficult tasks a central bank can attempt on Wednesday: Raise borrowing costs enough to slow growth and tame high inflation, but not so much as to topple the economy into recession.

Photo Insert: The US Federal Reserve

With a war raging in Europe and price increases at a four-decade high, Fed Chair Jerome Powell will seek to engineer a “soft landing”: A gradual slowdown in economic activity that helps curb surging prices, while keeping the job market and economy expanding, Christopher Rugaber reported for the Associated Press (AP).

Yet many economists worry that with the price of gas and commodities spiking, the additional burden of higher interest rates could choke off growth entirely.

“You’ve got to be both lucky and good” to avoid causing a downturn, said Alan Blinder, a Princeton University economist who served as vice chair of the Fed from 1994 to 1996, when the central bank was widely seen as achieving a soft landing.

As a first step, the Fed is set to raise borrowing rates several times this year, beginning this week with a quarter-point increase in its benchmark short-term rate. Policymakers will also discuss when and how fast to shrink the Fed’s $9 trillion in bond holdings, a step that would also have the effect of tightening credit for consumers and businesses.

Such moves mark a sharp turn away from the Fed’s ultra-low-rate policies, which it enacted when the pandemic recession erupted two years ago. By pinning its key rate near zero for two years and buying trillions in bonds, the Fed has kept borrowing costs at historically low levels and helped boost stock prices.

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