Broader Impact of Aggressive Moves by Fed to Tame Inflation TBD

Since June 2022, the Federal Reserve began to take aggressive action to lower inflation, which for the 12-months ended November 2022 reached 7.1% — the highest level in four decades. Over the past 6-months, the steep interest rate hikes by the Fed has resulted in relatively modest damage to the financial markets and the broader economy. Several other positive signs and the absence of serious strains on the financial system at this point in time have “bolstered President Joe Biden’s hope that any recession might be mild — or avoided altogether.” However, the typical delay in interest rate increases feeding through to economic activity and the potential that the aggressive moves made by the Fed this year could have a more significant impact next year — particularly if consumers take on more debt and if unemployment rises; but “if the Fed can tame inflation without crashing the economy — achieving the so-called soft landing that has eluded the central bank so often in the past — it would defy the warnings of Wall Street CEOs and most economists.”