Beware Wishful Thinking About Inflation and Recession

Inflation has peaked. The Fed’s tightening has accomplished its mission. Strong labor market and consumer fundamentals will keep any recession mild.

These are among the story lines providing a tailwind to stocks in recent weeks. They feed hopes the Federal Reserve has achieved a soft landing: bringing inflation down to 2% without pushing up unemployment or tipping the economy into recession.

A reality check is in order. A soft landing is certainly possible, but these story lines look more like wishful thinking than a tough-minded appraisal of the Fed’s task. Let’s review.