Is this the crash-proof economy?

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"The Federal Reserve keeps taking, but nonetheless, this economy keeps on giving," said Mitchell Hartman in NPR's Marketplace. "The standard metaphor" for when the central bank has to raise interest rates to slow an overheating economy is that it takes away the punch bowl. In this case, "we — consumers and businesses in this economy — keep dancing on the tables and partying it up." The country's gross domestic product accelerated yet again in the second quarter, rising 2.4% on an annual basis, up from 2% in the first quarter. This resilience is stunning given the "interest rate hikes from the Fed and contraction in the housing sector." Inflation is now moderating, and business investment — particularly in factory building for semiconductors and electric vehicles — is booming, thanks in large part to incentives in technology and infrastructure legislation backed by the Biden administration.

Forget Paul Volcker or Alan Greenspan. You could make the case that Jerome Powell is the most successful Fed chief in history, said Jamie McGeever in Reuters. It's looking more likely that the central bank can avoid a recession while lowering inflation and keeping unemployment at a record low. Such a "soft landing" didn't seem possible a few months ago, but "the economy is defying all the odds." Recall that Powell also endured "public lashings from his then boss," former President Donald Trump. "Clueless Jay" is having the last laugh. Businesses also deserve credit for facilitating a measured slowdown, said Ruth Simon and Sarah Chaney Cambon in The Wall Street Journal. Two-thirds of small businesses have cut costs in the past six months, which is "just what the Federal Reserve would like to see to combat inflation." But they've made "a priority of keeping workers," who in turn are able to keep "spending their paychecks."

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It's too soon to give the all-clear signal, said Jeanna Smialek in The New York Times. Three previous recessions — in 1990, 2001 and 2007 — were preceded by a similar "soft-landing optimism." In each case, the Fed had begun reducing rates after a period of tightening just before the downturn began. "Interest rates are like a slow-release medicine" that takes time to achieve its full effect. Fed officials would "rather make the mistake of going too far" than stop short and risk an inflation rebound, said Howard Schneider in Reuters. That helps explain why the Fed raised rates another quarter–percentage point last week, despite all the upbeat economic signals. The question is when to loosen the pressure, which "will be just as important and perhaps even harder to get right." Enough dwelling on the negative, said Noah Smith in his Substack newsletter. When we look at "the objective measures of this economy, they are great." We are "pretty damn near the best labor market ever." The inflation scourge is over. And those two things are delivering a third big pillar of a strong economy: Real wages are rising, meaning people can afford to buy or save more. "If you can think of any way in which the economy could be better, please let me know."

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