Searching for the Goldilocks Economy

Searching for the Goldilocks Economy

July 26, 2022
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At the risk of slowing economic growth, the Fed has driven short-term rates higher to help ease inflation. But it’s a tricky proposition.

Raise rates too much, and you may trigger a recession. Don’t raise rates enough, and you won’t be able to restore price stability. The Fed is looking for a Goldilocks moment when its monetary policy is “just right” (not too hot and not too cold) to create a soft landing for the economy.

You may not have noticed, but early evidence shows inflation is starting to slow. I’m confident the Fed sees it, too. However, most people judge inflation by prices at the gas station and the grocery store, so inflation is genuine and painful until those prices trend lower. Lately, gas prices have decreased, although they are still higher than most of us would like.

But I remain an optimist. History shows that economies and markets move in cycles, so I believe the current trend is healthy in the long term. I also think smart economists at the Fed are making difficult decisions following an extraordinary couple of years.

Our best days are ahead. I’m excited for the second half of 2022 and expect things will look pretty different by year’s end. Meanwhile, I’d advise taking a step back from daily news for a while.

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