NRPLUS MEMBER ARTICLE I n 2003, six weeks into the Iraq War, President George W. Bush boarded an aircraft carrier and dramatically declared “mission accomplished.” The war, of course, was far from over.

Today, against the backdrop of better-than-expected economic news, it is tempting for President Biden and Federal Reserve chairman Jerome Powell to take a victory lap and declare “mission accomplished” in terms of bringing down inflation without causing a recession. But before celebrating a soft economic landing, they might want to remember President Bush’s unfortunate premature victory declaration. In the year ahead, there are all too many things that could still throw the U.S. economy into a meaningful recession.

There can be no gainsaying that so far, the U.S. economy has tolerated the most aggressive round of interest-rate hikes in four decades better than most economists had anticipated. Despite a full five-percentage-point increase in interest rates, the economy has continued to grow, albeit sluggishly, and unemployment has remained low at 3.6 percent. At the same time, headline inflation has come down steadily from a high of over 9 percent in June 2022 to today’s level of around 3 percent.

In the period immediately ahead, a big fly in the ointment for the U.S. economy could be the likelihood that the full effects of last year’s monetary-policy tightening are yet to be felt. If it is true, as many economists believe, that the full effects of tightening are only felt between twelve and 18 months after the fact, then last year’s large-scale interest-rate hikes are yet to truly work their way through the economy. After all, it was only in June last year that the Fed began the first of its four unusually large 75-basis-point rate hikes.

Heightening the concern that monetary policy could still hit the economy hard is the fact that the broad money supply is now declining at an unprecedented pace. In much the same way as the 40 percent cumulative increase in the broad money supply in 2020 and 2021 facilitated (with a long lag) inflation’s surge last year, so too might a contracting money supply help precipitate a recession (with a lag).

It also has to be of concern that higher interest rates are causing major problems in the real-commercial-property space that could force banks to further restrict credit. Over the next year, around $500 billion in real-commercial-property debt will come due at a time when the property companies are already struggling with low occupancy rates as many workers choose to work remotely. A wave of property-loan defaults must be expected to cause strains in the U.S. financial system, including the so-called shadow banks. That in turn could have a dampening effect on the economy.

Another factor that could undermine the current U.S. economic recovery is the likely exhaustion of the Covid-related support to households in the form of government checks associated with the cumulative $5 trillion budget stimulus of 2020 and 2021. Up until now, the associated excessive savings that households built up during the pandemic has proved to be an invaluable support for household consumption. However, according to a recent study by the Federal Reserve’s economic staff, by now those savings have been depleted. And that could cause difficulties for the economy, since household consumption constitutes such a large part of overall spending.

As on previous occasions, unwelcome economic developments abroad could also throw a spanner into the works of a U.S. economic recovery. Highlighting those risks are China’s deep-seated economic problems, including the bursting of its large property- and credit-market bubbles. Should those problems persist, China, the world’s erstwhile economic-growth engine, could prove to be a major stumbling block for the U.S. and world economic recoveries. Needless to add, if China’s economic travails tempted President Xi to blockade Taiwan, our primary microchip supplier, the implications for the U.S. economy could be very serious.

Instead of prematurely celebrating the encouraging signs of a rebounding economy, the Federal Reserve should keep focused on the many things that could still go wrong with our recovery — and prolong the pause on its interest-rate-hiking cycle to see what the full effect of its most aggressive round of monetary-policy tightening in the past four decades actually turns out to be.