The Fed's Next Storm Brewing in Calm Market

The Federal Reserve's attempt to guide the economy to a "soft landing" while preserving financial stability is increasing the odds that it will either be a crash landing or a longer, more turbulent glide path to the ground. The persistence of inflation in the face of the fastest rate hike cycle since the 1980s has led some Fed officials to turn up the heat again, with a hawkish outlook on interest rates. However, tighter monetary policy could cause multiple risks to financial stability to blow up or worsen the impact of other shocks, such as debt ceiling negotiations, forcing more interventions and partially offsetting tighter policy.