The Fed is doing everything it can to make a “fairly soft landing,” which carries its risks. As we all know, the Fed cannot grow corn. You can’t make ships go faster. In essence, Federal Reserve Chair Jerome Powell’s toolkit is to lower his glasses and say in a tough tone, “Hey, let’s stop buying too much” to try to normalize the forces of supply and demand.
The problem is that demand doesn’t need to slow down any further: it’s already happening. What we need is supply-side changes – more workers, more products, more services – and that requires more than monetary policy.
The mood in the economy is… strange. This oddity has real implications. a study A recent study found that mood affects what people do, with a media story about the economy responsible for 42 percent of the decline in consumer mood in the second half of 2021.
Indicators such as GDP are important, but often economic problems lie in forecasts. When we think about things like inflation, financial conditions, and monetary policy, it is best to approach it through people. People are of course silly and chaotic. Too many economists and analysts forget that the economy really consists of a group of people behaving like one and trying to make sense of this world.
When policies focus more on metrics that may not reflect full reality, and not on messy people who do ridiculous things such policies are supposed to serve, we enter dangerous territory.
There is no economic recession, yet. Now we’re in a kind of “stagnant mood“: A period when people’s low expectations are based on real-world interests and past experiences. Things are not going well. And if they don’t improve, we will have to worry about more than just bad feelings.”
Kayla Scanlon (Tweet embedHe founded economic education company Bread and produces newsletters and videos on economics. Prior to founding his own company, he worked for the Capital Group and an education startup.