The economic recovery after the financial crisis was sluggish. Ten years later, the consequences were still felt. The head of the Federal Reserve, Jerome Powell, has been a central banker for ten years and has experienced this development in a responsible position. A common analysis of this period is that the administration under Barack Obama and Vice President Joe Biden had done too little fiscally, while the Fed under Ben Bernanke and Janet Yellen had tightened monetary policy too early.
Those responsible, who are still in office and dignity today, drew their consequences from this when the pandemic hit them. They announced an exceptionally generous aid package for citizens and businesses and eased monetary policy. Almost two years later we have the salad. Core inflation is higher in America than in comparable developed countries, which supports two theses: the Biden administration has done too much of a good thing, the Powell Fed has not wanted to admit it for too long.
Now, however, the Fed is awake. It now wants to catch inflation again as soon as possible. It has a legitimate concern that citizens’ and companies’ ideas about future inflation are getting out of hand. Powell believes that America’s economy is strong enough to endure worse financing conditions. He draws his confidence from the data for the financial situation of households and companies. In fact, it’s not that bad. In addition, the labor market seems exceptionally healthy with an unemployment rate of 3.6 percent, right? In fact, there are now almost two vacancies for every unemployed person of working age. In order to keep their employees and recruit new ones, employers inevitably raise wages. The danger is that they will trigger new rounds of price increases that could be difficult to tame. A soft landing of the American economy still seems possible. But this is not guaranteed. A recession seems more likely.