For the last 18 months, all you heard from the markets was that the U.S. economy was three months away from a recession. Now, the analysis is that that inflation is on a smooth glidepath down and the economy will never have a downturn again.
But behind the scenes, in some economic circles, there is growing concern about another risk for the economy, dubbed a “no landing” scenario.It is economic growth that’s too strong to allow inflation to fall all the way to 2%, where the Federal Reserve aims for it to be, and therefore an economy that will need more Fed rate hikes to slow inflation down, according to Chris Low, chief economist at FHN Financial.
So why does this matter? Why would the Fed be in such a tough spot? Three words — the presidential election. Ray Fair, a Yale economics professor, thinks whether or not the Fed successfully lowers inflation will be what really matters for the 2024 presidential election. If inflation does not go gently and the Fed is still fighting next year, it would likely be negative for the Democrats, he said.
Harker said the economy was likely on track to return to the low interest-rate, low inflation environment of 2012-2019.