An unlikely pair of economic titans
Time magazine made a good argument for selecting Taylor Swift as its 2023 Person of the Year. The ability to spread joy is a gift, and TS has it in spades.
But for the first annual Trendlines Business Person of the Year (™/©/patent pending), the hands-down winner is Jerome Powell, chair of the Federal Reserve. For nearly six years Powell has helped steer the US economy through boom times and bad, including the worst inflation outbreak since the early 1980s.
There was praise for Powell last week — and another run-up in stocks and bonds — after he signaled that Fed officials 1) are most likely done raising interest rates following a run of good news on consumer prices; 2) expect to cut rates significantly next year; and 3) don’t see a recession in 2024 (barring a nasty shock).
In other words, a soft landing — the return of inflation to more normal levels without a spike in unemployment — is in sight.
Powell, of course, hasn’t turned off the “fasten your seat belt” sign, noting that the economy has been especially hard to predict since COVID upended everything in 2020.
“It is far too early to declare victory, and there are certainly risks,” he told reporters on Wednesday after the Fed wrapped up its last meeting of the year with a decision to keep rates where they’ve been since July.
His hedging makes sense given that a soft landing is the central banking equivalent of baseball’s perfect game.
The Fed has turned to serial rate increases nine times since 1961 to tackle elevated inflation, according to a 2020 report by investment firm Piper Sandler. (Higher
borrowing costs typically hurt the economy, and contain price increases, by slowing consumer spending and business investment.)
A recession followed eight of those credit tightening cycles.
The one exception was in 19941995, when the economy continued to expand even as Alan Greenspan’s Fed boosted rates.
“Soft landings are rare,” said Eric Rosengren, former president of the Federal Reserve Bank of Boston. “It takes a combination of luck and skill.”
On the luck side of the ledger, according to Rosengren: The economy didn’t buckle under the weight of the Fed’s aggressive rate hikes.
That was because employers, having worked hard to hire after the pandemic ebbed, were reluctant to cut workers even as they worried that a recession was looming. And Americans continued to spend at a healthy clip even after federal pandemic aid ended and savings dwindled.
The result: After a dip in the first three months of 2022, the economy has expanded for five straight quarters, most recently at a robust 5.2 percent annualized rate from July through September. The job market gradually loosened up as more people joined the labor force.
Another stroke of luck: Inflation didn’t become entrenched.
When it comes to skills, the Fed erred by waiting too long to push up interest rates. But once it got going, it deftly applied the brakes and managed expectations on Wall Street and Main Street.
Economists caution against giving Powell, who is known as Jay, too much credit for putting a soft landing within reach.
Claudia Sahm, an economist and former Fed staffer, said inflation was mostly caused by COVIDrelated backlogs for goods and services, not excess demand from consumers and businesses. The Fed’s big anti-inflation tool is higher interest rates, which can dampen demand but can’t untangle supply gridlock.
“Jay did not unload the docks, drill, process work visas, or get a second job,” Sahm said in a post on the social media platform X.
Still, she wrote, “Jay does deserve a victory lap. The Fed could’ve taken down the plane.”
Economist Jeff Fuhrer said the Fed’s rate hikes were likely too aggressive, which could be a problem down the road because it takes time for steeper borrowing costs to slow the economy.
“It will likely turn out that they will not need a slower economy to bring inflation down to 2 percent (or within spitting distance),” said Fuhrer, a nonresident fellow at the Brookings Institution and former Boston Fed director of research.
Missteps aside, Powell has so far kept a $27 trillion economy out of a recession that nearly all economists said was inevitable. The achievement wasn’t lost on the editors at Time; the Fed boss was one of their runners-up for Person of the Year.
And Swift’s accomplishments made business news, too. Her Eras Tour is expected to pull in some $1.4 billion, according to trade publication Pollstar, making it the highest-grossing music tour on record. The tour is credited — by legit economists — for contributing to the economy’s strong third quarter through fan spending on travel, hotels, and restaurants.
As the X poster with the apt account name Chairman Birb Bernanke put it: “taylor swift is singlehandedly responsible for keeping the economy out of a recession. she is our soft landing.”
If TS keeps it up, she is the clear front-runner for the Trendlines Business Person of the Year in 2024.