Over the last 14 months, the Federal Reserve has taken a deliberate and economically painful approach to combating elevated inflation rates through interest rate hikes. The regional banking crisis and a possible debt-ceiling induced default on US debt could change all of that.

What's happening: There are two policy options that the Fed can use to address elevated inflation. It can systematically raise interest rates in order to induce price stability, or it can practice opportunistic monetary policy. That's when instead of hiking interest rates and tightening policy, policymakers simply do nothing but wait.

Proponents of the opportunistic approach say that when inflation is moderate, but still above the Fed's 2% long-term objective, policymakers shouldn't take any deliberate action to lower inflation and should instead wait for some sort of external circumstance like a recession to reduce inflation on its own.

"It does sound kind of weird," acknowledged Laurence Ball, an economist at Johns Hopkins University who helped popularize the concept in the 1990s. "The idea is that if you don't slow the economy on purpose, at some point the economy will slow accidentally and then inflation will go down."

Former Philadelphia Fed President Edward Boehne, put it this way: "Sooner or later, we will have a recession. I don't think anybody around the table wants a recession or is seeking one, but sooner or later we will have one. If in that recession we took advantage of the anti-inflation [impetus] and we got inflation down from 4.5% to 3%, and then in the next expansion we were able to keep inflation from accelerating, sooner or later there will be another recession out there."

Interest rates are hovering at levels high enough to moderate economic activity and inflation has eased off of its June 2022 peak. Some economists think it's time for the Fed to take their hands off of the steering wheel.

Investors seem to agree — the market has priced in a 72% chance of a pause in interest rate hikes at the next policy meeting in June, according to the CME FedWatch Tool.

The opportunity: It doesn't hurt that the regional banking crisis and threat of a debt-ceiling induced default have already created economic headwinds that could bring down inflation.

Federal Reserve Chair Jerome Powell even noted last week that the collapses of Silicon Valley Bank and Signature Bank had done some of his work for him.

Speaking during a panel discussion with former Fed chair Ben Bernanke, Powell noted that interest rates might not have to rise "as much as they would have otherwise to achieve our goals" because banking turmoil has already led to tighter lending conditions.

The debt ceiling crisis, said Ball, could also act as a disinflationary event. "It could end up being just what's needed to slow the economy down," he said, noting that there's still a lot of uncertainty around how negotiations play out.

Federal Reserve Bank of Chicago President Austan Goolsbee noted in an interview with Yahoo Finance in early May that the debt ceiling debate would likely lead to even tighter credit. "We have to figure out how much of the work of monetary policy is getting done already through the credit conditions," he said.

Some doubts: The reduction in inflation after recessions, he found, has varied considerably. A credible disinflation policy put into place by the Fed delivers faster, more consistent results.

The thought that some sort of natural intervention will stabilize prices with minimal pain is a nice one, said Julian Brigden, co-founder and president of Macro Intelligence 2 Partners, but it's not very realistic. And nobody wants the economic catastrophe that an actual US default would entail.

Still, it appears that the mere threat of one could finish the Fed's job for it.

Bernanke says more Fed action is needed

But Bernanke, who chaired the Fed during the 2008 financial crisis, thinks that it has more work to do.

In a new paper, Bernanke argued that the Fed will likely have to further slow the economy in order to bring down still-elevated inflation levels.

"Looking forward, with labor market slack still below sustainable levels and inflation expectations modestly higher, we conclude that the Fed is unlikely to be able to avoid slowing the economy to return inflation to target," Bernanke and Olivier Blanchard, a former International Monetary Fund chief economist, wrote in the paper released Tuesday.

The study said that the still-hot labor market has fanned the flames of inflation and that it might prove to be a stubborn source of price pressures that might only be remedied by an economic downturn, reports my colleague Bryan Mena.

"Overheating in the labor market has played a minor role but an increasing one over time. As price shocks fade, it is likely to be the dominant factor, requiring a slowdown of the economy to return inflation to target," Bernanke and Blanchard wrote in a slide show of their paper presented at a forum hosted by the Brookings Institution in Washington, DC.

America's home improvement boom is falling apart

A hammer and some nails can go a long way, but unfortunately there are some things even the best DIYers can't fix. The somber forecast for home improvement companies like Lowe's and Home Depot is one of them.

Months of being stuck at home during the height of the Covid pandemic led to a home improvement boom in America, with quarantiners rushing to improve their surroundings and to beautify the apartments, homes and condos they couldn't leave.

But the Covid emergency is over, prices are (much) higher, consumers are growing fearful of a recession and people are spending less at Lowe's and Home Depot, report my colleagues David Goldman and Parija Kavilanz.

The numbers: Lowe's on Tuesday lowered its profit and sales outlook for the year, saying consumers were spending less on home improvement. It comes on the heels of rival Home Depot also posting disappointing sales and a somber forecast last week.

Lowe's said sales at stores open at least a year fell 4.3% in the past quarter. For the first quarter, Lowe's said overall sales fell 5.5% to $22.3 billion. Profit fell 3% to $2.3 billion.

The company now expects annual sales to come in somewhere between $87 billion and $89 billion this year, down from its previous estimate of $88 billion to $90 billion.

At stores open at least a year, Lowe's now predicts sales will fall as much as 4%. It had previously expected sales to be flat to down 2%. And Lowe's lowered its profit guidance by 3% from its original forecast.

Home Depot missed on first quarter sales and lowered its outlook for the year after customers slowed their spending. The company said sales fell 4.5% at stores open at least a year during its latest quarter, and its income decreased 6.4% from the same stretch a year ago.

Total revenue for the quarter slipped 4.2% versus a year ago, to $37.3 billion. The retailer also cited falling lumber prices and weather-related challenges, including heavy rains in California during the period, for denting its sales.

What it means: Consumers just aren't spending on stuff they don't need anymore. Target, Walmart and Home Depot over the past couple weeks all noted that discretionary purchases are down across the board. People are spending more on groceries and other essentials and less on clothes and gutters.