“It was a bad, bad collapse,” said Paul McCully, an economist and senior fellow at Cornell Law School, but Volcker stopped the landing at the point that many parts of the macroeconomic landscape could be changed and moved toward prosperity and markets. can be bowed down.”
What will a complete reverse Reagan economy look like in the next few years?
During 2022, inflation begins to ease. As consumers shift some of their spending toward services and away from physical goods, corporate supply chain managers figure out how to accommodate any changes in demand that prove permanent, and as demand softens. The Fed moves toward somewhat higher interest rates and Congress does not repeat the pandemic spending binge of the first half of 2021.
But, crucially, the Fed doesn’t overdo it, in a best-case scenario for Biden and Democrats. Just as the Volcker Fed was able to achieve simultaneous declines in unemployment and inflation in 1983 and 1984, the Powell Fed faces the delicate task of trying to reduce inflation, while driving further improvement in the job market. Not so aggressive action is taken to weaken.
The goal is to achieve some of the Goldilocks outlook for the economy by the end of 2022. In projections released this month, for example, the average Fed leader expected an unemployment rate of only 3.5 percent and inflation of 2.6 percent in the final months of next year. , continuing through 2024 with a strong labor market and gradually declining inflation.
“If the Fed, through skill and luck and luck, sort of gets this thing out in the next year or two, you can make a very strong case that the underlying progressive agenda, which is to tackle income and wealth inequality , may indeed flourish,” said Mr. McCully.
If it does, it will be an economy in which the favorable aspects of the 2021 economy – empowering workers, wage growth, and so on – persist, while the high inflation that overwhelmed those gains in the minds of many Americans Yes, it fades.
Achieving this will not be an easy task. History is replete with examples of the Fed raising interest rates to curb inflation, only to cause a recession; In fact, it was a more common pattern than in the decades immediately following World War II. In a pessimistic scenario, what inflationary forces have taken will prove to be deep enough that they will not go away in the absence of a recession.