In the past, efforts to curb inflation have consistently resulted in a rapid economic slowdown, such as what occurred in the 1980s. Is it possible that the outcome will be different this time around?
The current state of the U.S. economy presents a positive outlook as most workers remain employed despite recent high-profile layoff announcements.
According to data from the Bureau of Labor Statistics, the number of individuals filing for unemployment benefits has declined to a 9-month low of 186,000, maintaining an unemployment rate of 3.5% – the lowest in 50 years.
Apart from that, there are approximately 10.5 million job opportunities available.
According to Gregory Daco, Chief Economist at Ernst and Young’s EY-Parthenon consulting group, the U.S. may be heading towards an economic recession, although it may differ from previous ones.
He cited healthy household finances and resilient labor demand as factors contributing to a softer and more gradual pullback in comparison to past recessions.
Despite this, the economy is showing signs of slowing down with a peak in consumer spending, reduction in working hours, and a pullback in manufacturing activity.
The slowdown is being met with relief as it suggests an economic “soft landing” with a reduction in inflation without a rapid rise in unemployment.
The Federal Reserve has been implementing policies to curb inflation, including raising interest rates, which Fed Chair Jerome Powell acknowledges as challenging but necessary to achieve a soft landing.