What the Market Turmoil Means for the Fed’s ‘Soft Landing’ Goal

US policymakers led by Federal Reserve Chair Jerome Powell have been trying since early 2022 to use higher interest rates to ease price pressures without causing the economy to contract — an ideal scenario that economists call a “soft landing.” While history suggested that would be almost impossible to pull off, as inflation fell and economic output grew economists inside and outside the Fed became increasingly convinced that policymakers might manage it this time. But a sudden sagging in job numbers released in early August and global market turmoil that followed had some wondering if the Fed might feel pressured to cut interest rates more aggressively than it had planned, to protect against a harder-than-expected landing.

It’s when a central bank is able to slow the economy enough to curb demand and bring inflation closer to its target — 2% in the Fed’s case — but not so much as to cause a significant downturn and a big rise in unemployment. Doing that takes a combination of smart policy making and luck.