Is America Witnessing an Immaculate Disinflation?
Inflation Slows Significantly, Labor Market Cools: Experts Dub it “Immaculate Disinflation”
In a promising development for the US economy, inflation has significantly slowed down over the past year, dropping to 3.2% in October from a high of over 9% in the summer of 2022. This decline has brought hope that the Federal Reserve can effectively curb price increases without causing a sharp rise in unemployment.
Economists have hailed this simultaneous decrease in inflation and unemployment as “immaculate disinflation” or a “soft landing.” The term was coined by columnist Martin Wolf in February 2022 and gained widespread popularity within weeks.
While there is cause for optimism, top government economists exercise caution and are hesitant to declare victory over inflation. The challenge now lies in continuing to reduce inflation without triggering a significant downturn in the economy.
This objective of achieving a gentle landing is a primary focus for Fed officials. They remain optimistic about the potential for success in reducing inflation without a substantial increase in unemployment. Fed Chair Jerome Powell expressed his satisfaction with the progress made so far, emphasizing the avoidance of the typical rise in unemployment during rate-hiking cycles.
However, variations exist in the definition of “immaculate disinflation” among observers. Some argue that as long as there is no recession, it can be considered immaculate. In this context, it is crucial to note that unemployment has slightly increased, suggesting the need for further economic slowdown to normalize price increases.
The labor market is another area indicating a cooling down trend. This development strengthens the belief that the Federal Reserve’s measures can effectively tackle inflation without triggering unfavorable consequences for employment.
As the economy inches closer to achieving “immaculate disinflation,” it becomes imperative for policymakers to strike a delicate balance. The key lies in reducing inflation without compromising the overall health of the economy.
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