Federal Reserve to begin risky pursuit of a 'soft landing'

WASHINGTON (AP) — The Federal Reserve on Wednesday will launch one of the most difficult tasks a central bank can attempt: Raise borrowing costs enough to slow growth and tame high inflation, but not so much as to topple the economy into recession.

With a war raging in Europe and price increases at a four-decade high, Fed Chair Jerome Powell will seek to engineer a “soft landing”: A gradual slowdown in economic activity that helps curb surging price hikes, while keeping the job market and economy expanding.

Yet many economists worry that with the price of oil and other commodities spiking, the additional burden of higher interest rates could choke off growth entirely.

“You’ve got to be both lucky and good” to avoid causing a downturn, said Alan Blinder, a Princeton University economist who served as vice chair of the Fed from 1994 to 1996, when the central bank was widely seen as having successfully raised rates without triggering a recession.

As a first step, the Fed is set to raise borrowing rates several times this year, beginning this week with a modest quarter-point increase in its benchmark short-term rate. The policymakers will also discuss when and how fast to shrink the Fed’s $9 trillion in bond holdings, a step that would also have the effect of tightening credit for consumers and businesses.

Such moves mark a sharp turn away from the Fed's ultra-low-rate policies, which it enacted when the pandemic recession erupted two years ago. By pinning its key rate near zero for two years and buying trillions in bonds, the Fed has kept borrowing costs at historically low levels and helped boost stock prices.

The Fed, by its own admission, underestimated the breadth and persistence of high inflation after the pandemic struck. Many economists say the central bank made...