And that may be the case for the mild recession coming our way. It says a lot that markets and commentators are worried about a recession if the Fed raises rates to what effectively would still only be 0% after accounting for inflation—a neutral level. It suggests they believe that financial and labor markets can’t hold up if the Fed isn’t actively accommodating the economy. If that’s truly the case, then the economy can’t grow sustainably and it may need a little reset. A mild recession might not only break inflation but may be what the economy needs to get back to normal.
Allison Schrager is a Bloomberg Opinion columnist covering economics. A senior fellow at the Manhattan Institute, she is author of An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk.