With US inflation reaching 7.9% in February 2022, the Federal Reserve moved to increase the federal funds rate by 0.25 percentage points at its March meeting. The Federal Open Market Committee’s (FOMC) latest Summary of Economic Projections (2022), released at the same meeting, projects interest rates to reach 1.9% by the end of 2022. In response, there has been much discussion over the plausibility that the central bank can achieve a soft landing without pushing the US economy into a recession.
While engineering a soft landing is historically very rare, Fed Chair Jerome Powell told lawmakers in early March that he believes achieving a soft landing is “more likely than not” (Powell 2022). The FOMC’s March forecast (FOMC 2022), as well as the consensus forecast from the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters (FRBP 2022), supports this claim: in both forecasts, inflation recedes to below 3% by 2023 and unemployment remains below 4%.
To examine the plausibility of the Fed’s forecasts, we look at quarterly data going back to the 1950s and calculate the probability that the economy goes into a
— source cepr.org | Lawrence H. Summers, Alex Domash | 13 Apr 2022