The Fed will seek a “soft landing” for the US economy.

The Federal Reserve (Fed) will meet tomorrow (Wednesday) with one of the most difficult tasks that a central bank can face: raising interest rates enough to cool inflation, but not so much that the economy falls into recession. .

At a time when the war is spreading in Europe and inflation in United States reaches levels not seen in four decades, the president of the US central bank, Jerome Powellwill try a “soft landing”: decrease economic activity enough to inhibit price increases, but at the same time keep the labor market and economic indicators robust.

Even so, many economists think that with the recent increases in fuel prices and other products, raising rates will end up suffocating the economy.

“To achieve such a challenge you have to be very good, but you also have to be very lucky”commented Alan Blindereconomist at Princeton University who was vice president of the Federal Reserve between 1994 and 1996, a time when according to experts the fed successfully made a soft landing.

As a first step, the Federal Reserve is set to raise rates several times this year, starting with a quarter-point hike this week. It will also have to decide when and how to scale back its multibillion-dollar bond purchases, which would result in tighter credit for individuals and businesses alike.

Such measures mark a stark contrast to the policy of keeping interest rates ultra-low, applied at the start of the pandemic, when the economy fell into a deep recession. By keeping interest rates so low and buying trillions of bonds Dollars Over the past two years, the Fed has made lending easier, which in turn has buoyed stocks in the stock market.

The US central bank, as it has admitted, underestimated the magnitude and persistence of high inflation. Many economists think the institution made it difficult for itself by taking too long to raise rates.

The average mortgage rate for 30-year fixed-rate mortgages, which bottomed out in January 2021 at 2.65%, has shot up to 3.85% in the past three months. At the same time, Powell has made clear plans to raise rates and inflation has continued to rise.

By raising short-term rates, the central bank aims to make home and car purchases more expensive, and increase borrowing costs for private businesses. As consumption declines, inflation will ease, Powell predicted in remarks to a congressional committee two weeks ago.

Strong consumption, fueled by economic stimulus measures, by bulky hiring and salary increases, have combined with delays in distribution chains, resulting in inflation of 7.9%, the highest since 1982.