How to avoid a recession

This comment in the WSJ caught my eye:

Fed officials will have to decide whether or when to raise interest rates to restrain inflation. If they move too little or too late, they risk letting inflation get worse for longer. If they move too much or too soon, they risk causing an economic downturn.

Actually, the bigger risk is that moving too late will cause a recession. Right now, the labor market is quite strong and the economy has a lot of upward momentum. Inflation expectations remain modest. Modestly slower NGDP growth will not raise the unemployment rate. The economy has a lot of upward momentum. Inflation expectations remain modest. Thus it is a good time to slow inflation.

Recessions tend to occur later in a cycle, when growth has slowed and inflation expectations have risen to unacceptably high levels. The biggest risk is not a recession in 2022, it’s a recession in 2024 or 2025.

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