Nailing the Landing

Can the Fed bring down inflation without sending the economy into recession?

- Cristina Lindblad

In January 2009, Captain Chesley “Sully” Sullenberger safely piloted his crippled US Airways plane to an emergency landing in the frigid waters of the Hudson River, saving all 155 on board. They called it the “Miracle on the Hudson.”

Now, Federal Reserve Chair Jerome Powell is about to attempt his own tricky touchdown: curbing inflation that’s running at 40-year highs without crashing the economy into a recession by raising interest rates just enough to cool demand, not kill it. It’s something the Fed has arguably pulled off perfectly just once, in 1994-95, when Alan Greenspan engineered a proverbial soft landing.

The feat has become markedly more difficult now that Russia’s invasion of Ukraine has unleashed turbulence in global financial and energy markets. The surge in oil and gas prices will propel inflation even higher. Rising energy bills—along with slumping stock and credit markets—could also sap consumer demand, increasing the chances of a recession. “It’s going to be very tricky,” says Moody’s Analytics Chief Economist Mark Zandi. “The economic plane is coming into the tarmac at a very high rate of speed, buffeted by severe crosswinds from the pandemic, with a lot of fog created by uncertainty due to geopolitical events.”