In an opinion piece for The New York Times, economist Paul Krugman discusses the current state of the US economy and the possibility of achieving a “soft landing” in terms of reducing inflation without causing a significant rise in unemployment. While the pandemic initially caused a significant loss of jobs, recent data shows that employment rates have returned to pre-pandemic projections. However, inflation has surged to levels not seen since the 1980s, and policymakers must work to bring it down.
There is no standard definition of a soft landing, but most economists agree that it would involve achieving an acceptable inflation rate without causing a large increase in unemployment. The Federal Reserve and other central banks have coalesced around the idea that 2 percent inflation is the appropriate target, but achieving this will be difficult. The problem of entrenched inflation due to price and wage revisions makes it hard to slow inflation down. Direct approaches such as price controls or negotiated price restraint have had mixed success.
Krugman believes that lowering inflation does not need to be costly, but policymakers face significant uncertainty and risk of overshooting or undershooting their targets. The debate over whether a soft landing can be achieved will likely continue, with disagreements over what constitutes acceptable inflation rates and levels of unemployment. The challenge for policymakers will be to find the right balance and avoid a hard landing.