The Fed is trying to reduce inflation by slowing the economy, which it is doing in turn by raising interest rates. But there’s a raging debate over how much the economy needs to slow, how much rates need to rise to achieve a given amount of slowdown and how long rate hikes need to take full effect. I sometimes think of the Fed as trying to operate heavy machinery in a dark room — while wearing heavy mittens. So, even if we don’t need a severe recession to get inflation under control, we might get one anyway if the Fed brakes too hard. There is, of course, the opposite risk: … Continue reading Soft Landing (Paul Krugman)