You might wonder why the Fed would want to slow down the economy and hurt the stock market. The central bank wants a strong economy, but sustainability is the name of the game: A little pain today could mean less pain tomorrow.
The Fed is trying to get inflation down to a more comfortable level — where price increases do not influence people’s spending choices or daily lives. Officials hope that if they can slow the economy enough to reduce inflation, without damaging it so much that it tips into a recession, they can set the stage for a long and steady expansion.
“I think it’s more likely than not that we can achieve what we call a soft landing,” Mr. Powell said during recent testimony before lawmakers.
The Fed has let the economy down easy before: In the early 1990s it raised rates without sending unemployment higher, and it appeared to be in the process of achieving a soft landing before the pandemic struck, having raised rates between 2015 and 2018.
But economists have warned that it could be a tough act to pull off this time around.
“I wouldn’t rule it out,” Donald Kohn, a former Fed vice chair, said of a soft landing. But he said a clampdown on demand that pushed unemployment higher was also possible.