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WASHINGTON, Sept 18 - U.S. Federal Reserve officials, who have tentatively embraced the possibility they can squelch inflation without a recession, meet this week with an autoworkers strike, a possible federal government shutdown, and a student loan squeeze on consumers posing new risks to that best-case outcome.
But with the economy already expected to slow over the final months of the year, prolonged disruptions in the auto industry and at federal agencies could have unpredictable results: Sapping consumer spending, possibly pushing up car prices in a blow to the Fed's inflation fight, and producing the sort of knock to business and consumer confidence that could spell the difference between a"soft landing" and a downturn.
With aggressive Fed interest rate hikes still working their way through the economy, banks tightening credit, and consumers reaching the end of pandemic-era savings, it may not take much to jolt the economy off course, said Vincent Reinhart, chief economist at Dreyfus and Mellon and former head of the Fed's monetary policy division.
With the Fed already expected to leave its policy rate at between 5.25%-5.5% at its Sept. 19-20 meeting, any emerging risks may do little more than shift the atmosphere and language around the meeting. But shutdowns of two major sectors - with potentially as many as 146,000 auto workers striking and perhaps 800,000 federal employees without paychecks - will chip away at growth and confidence every week they continue.
The dynamics are hard to predict - some analysts suggest the blow to consumer spending could even help the inflation fight - and these sorts of events often end up slowing growth in one period only for it to rebound later as workers receive back pay and higher wages.But inflection points, when households and businesses start to retrench all at once, are also tricky to anticipate.
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