It may not mean getting back to ultra-low interest rates and an economy that was booming pre-pandemic because there were such losses after the Great Recession to make up.
The advance estimate of gross domestic product — call it the economy for short —in the third quarter that ended September 30 was a 2.8% annualized real GDP. A slight slowdown from the second quarter’s 3.0% is still growth. As for inflation, it may well hit 2.0% when the Personal Consumption Expenditures (PCE) price index comes out tomorrow, as Goldman Sachs projected earlier in October.
Good news if accurate, and even if not, given the rate at which inflation has been dropping, hitting 2% should be in the immediate future if not tomorrow. With growth continued and the labor market where it seems to be, this seems like the definition of a so-called soft landing.
But then what? Should the Federal Reserve keep cutting interest rates? Are they actually fine as they are? What will consumers and businesses face from lenders?
These are the questions that come together under the greater umbrella of what happens now. As Mary C. Daly, president and chief executive officer of the Federal Reserve Bank of San Francisco, said in a recent speech, it’s necessary to look beyond a soft landing to see what is needed going forward.
“Recalibrating policy,” the phrase that Daly used, should be clear as a concept, though it goes beyond monetary theory. Both the Fed and the federal government reacted strongly across the stretch of the pandemic.
