Waiting for recession's Godot

Markets tremble at the Federal Reserve's every twitch. And yet, it doesn't seem to be able to have much effect on the actual economy.

Why it matters: The Fed's main policy tool — more important even than its ability to set interest rates or print money — is the trust that Americans have in its power. Increasingly, however, it seems to have power only over the relatively narrow realm of the financial and housing markets.

Where it stands: According to public opinion, the U.S. is seemingly in a semi-permanent recession, and the Fed has failed to improve matters.

• In reality, the economy is hot, unemployment is at record lows, and there's no sign of a downturn any time soon.
• A recession is inevitable eventually, but economists' forecasts for when it might arrive keep on getting pushed back.

Why it matters: If the U.S. economy does enter a recession soon, it'll be because the Fed has been hiking rates more aggressively than any time since 1980.

Between the lines: A lot of the Americans who think we're in a recession are deeply upset about inflation. But if the central bank's actions aren't consequential enough to reduce upward price pressures, they're unlikely to tip he economy into recession.

• Inflation has come down since the Fed started tightening, but it's far from clear that inflation came down because of Fed hikes.

What they're saying: "The increase in interest rates has slowed several sectors of the economy, most notably housing and commercial real estate,"Atlanta Fed president Rafael Bostic said last week.

• "However, other parts of the economy have not slowed so much."
• "Consumer spending has remained robust," he said, adding that GDP growth figures are still running "stronger than expected".

What we're watching: There are many factors that could explain the Fed's seeming impotence — from more efficient companies with less need for capital, to more liquid banks, to high inequality. Axios' Neil Irwin surveyed some of the theories on Friday.

The bottom line: The Fed's actions have had enormous effects on both stocks and the bond market. But so far the real economy doesn't seem to have noticed.

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