US Fed's Fantasy of Soft Landing Is Interrupted, Credit Crunch amidst Banking Crisis Sounds Alarm on Recession

The still strong job market and inflation that is difficult to cool down have made it more difficult for the Fed to make a choice.

As Wall Street News introduced earlier, the Fed may actually prefer to see a less strong employment data in May, which would help the Fed's efforts to slow inflation.

The Fed's fantasy is that interest rates at this level are already almost tight enough, and this, combined with a possible credit crunch from a banking crisis, could help the Fed achieve a sort of soft landing: inflation falls and at the same time there is only a modest rise in unemployment rate.

However, that vision was interrupted by an unexpected pick-up in employment and wages, with market analysts saying the strong jobs report "put the Fed in a tough situation."

Sean Snaith, director of the Economic Forecasting Institute at the University of Central Florida, said: Interest rates will have to stay high, and this strength in the labor market makes it harder for the Fed to keep lowering inflation.

Roger Hallam, global head of rates at Vanguard Asset Management, said that while the Fed's rate path hinges on upcoming inflation data, "the Fed does recognize that there are significant pressures on the banking sector and there are still significant challenges for them to address."