The US Economy Is Headed for a Hard Landing

If you’re still holding out hope that the Federal Reserve will be able to engineer a soft landing in the US economy, abandon it. A recession is inevitable within the next 12 to 18 months.

In their latest set of projections, Fed officials laid out a benign scenario, in which the economy keeps growing at a moderate pace and unemployment increases only slightly, even as the central bank raises interest rates significantly to get inflation under control. While the Fed’s forecasts have become more plausible over time, I see several reasons to expect a much harder landing.

First, persistent price increases have forced the Fed to shift its focus from supporting economic activity to pushing inflation back down to its 2% objective. The central bank’s employment mandate is now subservient to its inflation mandate. This can be seen both in Chair Jerome Powell’s performance at last week’s press conference and in the June FOMC statement, which removed language that the labor market would “remain strong.”