Foolish Chatter About Recession

Today on TAP: What’s really going on with the economy?

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It sure looks as if the economy is on track to achieve the long-sought, elusive “soft landing.”

What’s a soft landing? It’s a metaphor, and like all metaphors applied to matters economic, it can be misleading. But most people use “soft landing” to mean an end to the recent bout of inflation without the need for a recession.

Inflation was flat last month according to the latest Consumer Price Index report from the Labor Department. Core CPI, which excludes food and energy, hit a two-year low. And food and fuel prices are also trending down.

The stock market reacted to the good inflation news by soaring. Low inflation means that the Fed is more likely to take its foot off the monetary brake, further reducing the risk of recession.

Even Larry Summers, who relentlessly and mistakenly blamed the bout of inflation on Biden stimulus programs, partly recanted. Speaking on Wall Street Week, he admitted that many factors were transitory, and that the risk of recession was now 25 percent or less.

More from Robert Kuttner

But there are often skunks at picnics. On a Thursday earnings phone call with stock analysts, Walmart CEO Doug McMillon warned of the risks of deflation. Unlike disinflation, which is beneficial, deflation means seriously falling prices, and that can both portend and cause a recession.

However, if you look at what’s actually going on in the economy, some prices are declining slightly, but only relative to a more than two-year rise, just as we want them to do. For instance, turkey prices are down 4.5 percent from last year’s record, according to the American Farm Bureau Federation.

That’s hardly deflation. McMillon was using some price drops as an alibi for the fact that Walmart’s third-quarter profit numbers were below expectations.

The economy is doing just about what we want it to do; and now there should be more room for worker raises. As the UAW victory suggests, that has more to do with worker power than with macroeconomics. Corporate America’s outsized profits indicate that there is no reason for raises to be inflationary.

Let’s hope that the Federal Reserve gets the message and finally, belatedly, cuts interest rates, to let a benign economy realize its full potential.

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