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An elusive soft landing, in which inflation falls without a recession, is in sight for the U.S. economy. But even with inflation finally coming in below 3% and production still strong, Austan Goolsbee, president of the Federal Reserve Bank of Chicago, isn’t getting too comfortable.
“I just remind everybody, it’s central bankers’ job to be paranoid about everything,” Goolsbee told Quartz in an interview. “Easier soft landings to land than this one have been derailed by external shocks many times in the past.”
Goolsbee, who serves as an alternate member of the Federal Open Market Committee (FOMC) and was chairman of the Council of Economic Advisers during the Obama administration, included geopolitics, asset prices, and slowdowns on a global scale among the “many reasons that people could go in the freakout channel.”
“We’ve had recessions that began with popping bubbles,” he said. “We’ve had recessions that began with wars in the Middle East and commodity prices going up. We’ve had recessions that began when worldwide slowdowns took place.”
“So, yes, it could be worse,” Goolsbee added. “But it definitely requires vigilance at this point.”
Read Goolsbee’s full interview with Quartz here
A wider regional conflict in the Middle East could cause geopolitical turmoil and supply chain disruptions, raising oil prices. That, instability around the upcoming U.S. presidential election, and a laggard Chinese economy are all risk factors looming over the America’s economic recovery.
In 1988, for example, the Fed began a slow and steady monetary tightening campaign that was largely expected to bring about a soft landing. But the careful work of the Fed was hampered by a spike in oil prices brought about by Saddam Hussein’s invasion of Kuwait in 1990.
Goolsbee is not the first to warn of a potentially harder-than-expected landing. JPMorgan Chase chief Jamie Dimon has long said there’s a 35% to 40% chance that the U.S. economy will see a soft landing.
“We don’t know if it’ll be a soft landing or hard landing, or all the things in between,” he said in an interview with CNBC last month. “You know, I’ve always been a little skeptical that it’ll be soft. On the other hand, I’m hoping it’s soft.”
Read more: America’s biggest economic challenge in 2025, according to Chicago Fed President Austan Goolsbee
The U.S. saw a textbook case of a soft landing in the mid-1990s, when then-Fed Chair Alan Greenspan carried out an interest rate hiking campaign to preemptively stamp out inflation in 1994. The Fed then slashed the federal funds rate three times a year later.
Alan Blinder, a former Fed vice chairman, called it the “perfect soft landing that helped make Alan Greenspan a central banking legend.”
Goolsbee said the Fed has already achieved what he called the “Golden Path” last year, when it “got the inflation rate down close to as much as it’s ever come down in a single year without a recession.”
But there’s still a chance that the economic recovery doesn’t go as smoothly as many are hoping. Analysts see the possibility of a “shallow recession” at the tail-end of this year and into next. A shallow recession is one that helps to cool an overheated economy, like the one the U.S. has seen over the past year or so, without causing lasting damage. That means slightly higher unemployment, slower inflation, and slightly lower yearly GDP growth.
While there’s “always a chance of recession,” Goolsbee said the Fed needs to remain vigilant and ensure that it’s not keeping monetary policy too tight for too long. The central bank is widely expected to cut rates at the FOMC’s September meeting. An influx of economic data will likely determine how big the cut will be, with many expecting either a 25 or 50 basis point decrease.