This Is Biden’s Soft Landing, and He Deserves Some Credit

It’s hard to overstate how unusual a situation this is. When inflation took off in the fall of 2021 and the Federal Reserve started raising interest rates in early 2022, experts almost uniformly predicted a recession because that almost always happens when the Fed acts to lower inflation. Since 1965, we’ve had 11 periods during which the Fed raised interest rates to check inflation. Three of these ended in soft landings. Even if you reject the binary of “soft” versus “hard,” as Princeton economist Alan Blinder does, and instead call some landings “softish,” the majority of landings were hard, i.e., the economy entered a nontrivial recession.

The very softest economic landing since 1965, according to Blinder, occurred between December 1993 and April 1995. The problem then wasn’t inflation but a fear of incipient inflation. The Fed raised interest rates seven times, by a total of 3.09 percentage points (compared to 5.26 during the current period). Inflation plateaued at 3 percent, then fell slightly. (In those days nobody thought 3 percent inflation was a problem because Kiwis did not yet control the world’s central banks.) Unemployment, which is supposed to go up when the Fed raises interest rates, actually fell between 1993 and 1995. Even discounting for personal bias—Blinder became the Fed’s vice chairman in June 1994—it’s hard to dispute his description of these results as “fabulous.”

During this period, President Bill Clinton moved to steady the economy—then, as lately, the bond markets were freaking out about the budget deficit—by pushing through Congress a bill that cut spending by $255 billion over five years. Clinton also increased revenues by raising taxes. He boosted the top marginal income tax rate from 31 percent to 39.6 percent and the top corporate income tax rate from 34 percent to 38 percent. He expanded the taxable portion of Social Security benefits, and he removed a ceiling on income subjected to the Medicare tax. He expanded the Earned Income Tax Credit and indexed it to inflation. He increased the gas tax by 4.3 cents. This was all packaged into a single bill, the Omnibus Budget Reconciliation Act of 1993, that put the economy on a successful glide path for the rest of Clinton’s two-term administration. Every single Republican voted against the bill, along with a few Democrats, but Clinton got it passed.