The Federal Reserve is hoping to achieve the rarest of economic feats as it moves into full inflation-fighting mode: cooling consumer demand enough so that prices stop rising, without crushing it so much that it throws the country into a recession.
11 tightening cycles since 1965, of which eight were followed by recessions. Still, that doesn't mean a severe recession is guaranteed: There were five instances of either very mild recessions in which GDP fell less than 1% or there was no economic decline at all.
Median projections show that central bank officials are confident they can engineer such a landing: They anticipate core inflation falling to 4.1% at the end of the year, 2.4% next year and 2.3% in 2024, while they believe unemployment will hold steady at 3.5% to 3.6% for some time. Traders are already pricing in at least a 100% chance of a half-point rate increase at the conclusion of the Fed's May meeting on Wednesday, in addition to at least three more 50-basis point hikes at the central bank's subsequent meetings in June, July and September, according to the CME Group, which tracks trading.
And last week, the Bureau of Labor Statistics reported that the economy unexpectedly shrank in the first quarter of the year, marking the worst performance since the spring of 2020, when the U.S. economy was still deep in the throes of the COVID-induced recession.
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