US Congressional Research Service: "Higher Likelihood of Hard Landing than Soft Landing for US Economy"

[Photo by EPA Yonhap News]

[Asia Economy Reporter Park Byung-hee] The U.S. Congressional Research Service (CRS) has expressed concerns about the U.S. economy, mentioning hard landing and stagflation.

In a recent report titled "Where is the U.S. Economy Heading: Soft Landing, Hard Landing, or Stagflation (economic recession amid rising prices)?", CRS analyzed that the U.S. economy is facing a crisis.

CRS stated that monetary tightening is currently being implemented amid high inflation, and assessed that the likelihood of a hard landing is higher than a soft landing. CRS said, "To quickly eliminate inflationary pressures to a significant extent, an increase in unemployment is necessary," and evaluated that "soft landings are rare."

Although Jerome Powell, Chair of the U.S. Federal Reserve (Fed), has mentioned that soft landings were achieved after monetary tightening in 1965, 1984, and 1994, CRS pointed out the difference with the present situation, saying, "In 1965 and 1994, inflation was low, and even in 1984, when it was relatively high, the Personal Consumption Expenditures (PCE) price index was below 5%."

CRS emphasized, "While not an inevitable causal relationship and with some time lags, every recession since the 1950s has occurred after a prolonged period of interest rate hikes," and added, "In a situation like now, with high inflation and rising Fed rates, hard landings are more common than soft landings."

CRS noted that since the previous U.S. economic downturn occurred in early 2020 during the initial spread of COVID-19, if a hard landing occurs, it would be a 'double-dip recession.' A double-dip refers to a phenomenon where the economy enters a recovery phase after a recession but then falls back into recession again. If a double-dip materializes, it would be a rare case not seen in about 40 years since the second oil shock in the early 1980s.

CRS explained that the situation then and now is similar, noting that the early 1980s was the last time before this year that inflation exceeded 7%, and that the Fed raised interest rates above 19% to curb inflation, which led to a recession.

CRS also warned that if the Fed does not raise rates quickly due to concerns about a hard landing, the economy could face an even worse situation of stagflation (economic recession amid rising prices).

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