The Federal Reserve’s push to gradual the economic system and convey inflation beneath management is usually in comparison with an airplane descent, one that would finish in a comfortable touchdown, a bumpy one or an outright crash.

Jerome H. Powell, the Fed chair, is betting on one thing extra akin to the Miracle on the Hudson: a landing that’s light, all issues thought-about, and in contrast to something the nation has seen earlier than.

The Fed has raised charges sharply over the previous yr, pushing them simply above 5 % on Wednesday, in a bid to chill the economic system to carry inflation beneath management. Workers economists on the central financial institution have begun to forecast that America is prone to tip right into a recession later this yr because the Fed’s substantial coverage strikes mix with turmoil within the banking sector to snuff out progress.

However Mr. Powell made it clear throughout a information convention on Wednesday that he doesn’t agree.

“That’s not my very own almost definitely case,” he mentioned, explaining that he expects modest progress this yr. That sunnier forecast has hinged, partially, on traits within the labor market.

America’s job market remains to be very sturdy — with fast job progress and unemployment hovering close to a 50-year low — but it surely has proven indicators of cooling. Job openings have dropped sharply in current months, falling to 9.6 million in March from a peak of greater than 12 million a yr earlier. Traditionally, such a large decline within the variety of obtainable positions would have come alongside layoffs and rising joblessness, and outstanding economists had predicted a painful financial touchdown for precisely that purpose.

However to date, unemployment has not budged.

“It wasn’t alleged to be attainable for job openings to say no by as a lot as they’ve declined with out unemployment going up,” Mr. Powell mentioned this week. Whereas America will get the most recent replace on unemployment when a job market report is launched Friday, unemployment has but to rise meaningfully.

Mr. Powell added that “there are not any guarantees on this, but it surely simply appears to me that it’s attainable that we will proceed to have a cooling within the labor market with out having the massive will increase in unemployment which have gone with many prior episodes.”

America’s financial destiny rests on whether or not Mr. Powell’s optimism is appropriate. If the Fed can pull it off — defying historical past to wrangle fast inflation by sharply cooling the labor market with out inflicting an enormous and painful leap in joblessness — the legacy of the post-pandemic economic system could possibly be a tumultuous however in the end optimistic one. If it may possibly’t, taming value will increase may come at a painful value to America’s staff.

Some economists are skeptical that the great occasions can final.

“We haven’t seen this trade-off, which is unbelievable,” mentioned Aysegul Sahin, an economist on the College of Texas at Austin. However she famous that productiveness information appeared glum, which means that corporations bought burned by years of pandemic labor shortages and are actually hanging onto staff even when they don’t essentially want them to supply items and companies.

“This time was completely different, however now we’re getting again to the state the place it’s a extra regular labor market,” she mentioned. “That is going to start out enjoying out the way in which it all the time performs out.”

The Fed is accountable for fostering each most employment and steady inflation. However these objectives can come into battle, as is the case now.

Inflation has been operating above the Fed’s 2 % purpose for 2 full years. Whereas the sturdy labor market didn’t initially trigger the value spikes, it may assist to perpetuate them. Employers are paying increased wages to attempt to dangle onto staff. As they do this, they’re elevating costs to cowl their prices. Staff who’re incomes a bit extra are in a position to afford rising rents, youngster care prices and restaurant checks with out pulling again.

In conditions like this, the Fed raises rates of interest to chill the economic system and job market. Larger borrowing prices decelerate the housing market, discourage large shopper purchases like vehicles and residential enchancment tasks, and deter companies from increasing. As folks spend much less, corporations can’t maintain elevating costs with out dropping prospects.

However setting coverage appropriately is an financial tightrope act.

Policymakers assume that it’s paramount to behave decisively sufficient to shortly carry inflation beneath management — whether it is allowed to persist too lengthy, households and companies may come to anticipate steadily rising costs. They may then alter their conduct, asking for greater raises and normalizing common value will increase. That will make inflation even tougher to stamp out.

Then again, officers don’t wish to cool the economic system an excessive amount of, inflicting a painful recession that proves extra punishing than was essential to return inflation to regular.

Placing that stability is a dicey proposition. It’s not clear precisely how a lot the economic system must gradual to completely management inflation. And the Fed’s rate of interest coverage is blunt, imprecise and takes time to work: It’s laborious to guess how a lot the will increase to date will in the end weigh on progress.

That’s the reason the Fed has slowed its coverage modifications in current months — and why it seems poised to pause them altogether. After a string of three-quarter level price strikes final yr, the Fed has not too long ago adjusted borrowing prices 1 / 4 level at a time. Officers signaled this week that they might cease elevating charges altogether as quickly as their mid-June assembly, relying on incoming financial information.

Hitting pause would give central bankers an opportunity to see whether or not their price changes to date is perhaps adequate.

It could additionally give them time to evaluate the fallout from turmoil within the banking trade — upheaval that would make a comfortable financial touchdown much more tough.

Three massive banks have collapsed and required authorities intervention since mid-March, and jitters proceed to course by midsize lenders, with a number of regional financial institution shares plummeting on Wednesday and Thursday. Banking troubles can shortly translate into financial issues as lenders pull again, leaving companies much less in a position to develop and households much less in a position to finance their consumption.

The labor market could possibly be in for a extra dramatic slowdown, given the financial institution tumult and the Fed’s price strikes to date, mentioned Nick Bunker, the director of North American financial analysis on the job website Certainly.

He mentioned that whereas job openings have been coming down swiftly, a few of which may mirror a shift again to regular situations after a bout of pandemic-inspired weirdness, not essentially because of Fed coverage.

For example, job openings in leisure and hospitality industries had spiked as eating places and lodges reopened from lockdowns. These had been now disappearing, however that is perhaps extra a few return to enterprise as common.

“A comfortable touchdown is occurring, however how a lot of that’s gravity and the way a lot of it’s what the pilot is doing with the airplane?” Mr. Bunker mentioned. Going ahead, it could possibly be that the conventional historic relationship between declining job openings and rising joblessness will kick in as coverage begins to chunk.

Or this time really could possibly be distinctive — as Mr. Powell is hoping. However whether or not the Fed and the American economic system get to check his thesis may rely upon whether or not the banking system points clear up, Mr. Bunker mentioned.

“We would not get the reply if the monetary sector comes and ideas the desk over,” he mentioned.