By using this site, you agree to the Privacy Policy and Terms of Use.
Accept
IndebtaIndebta
  • Home
  • News
  • Banking
  • Credit Cards
  • Loans
  • Mortgage
  • Investing
  • Markets
    • Stocks
    • Commodities
    • Crypto
    • Forex
  • Videos
  • More
    • Finance
    • Dept Management
    • Small Business
Notification Show More
Aa
IndebtaIndebta
Aa
  • Banking
  • Credit Cards
  • Loans
  • Dept Management
  • Mortgage
  • Markets
  • Investing
  • Small Business
  • Videos
  • Home
  • News
  • Banking
  • Credit Cards
  • Loans
  • Mortgage
  • Investing
  • Markets
    • Stocks
    • Commodities
    • Crypto
    • Forex
  • Videos
  • More
    • Finance
    • Dept Management
    • Small Business
Follow US
Indebta > News > What Is A Soft Landing?
News

What Is A Soft Landing?

News Room
Last updated: 2023/09/18 at 9:16 AM
By News Room
Share
6 Min Read
SHARE

As we near the end of what has historically been the worst performing two months of the year for the stock market, and the pullback intensifies, the chorus of warnings from the bear camp grows louder. The economic data is perceived to be either too hot, suggesting interest rates will stay higher for longer, or too cold, raising concerns about a recession in the months ahead. I think the reality is that the data in aggregate is just right, continuing to trend in the direction of a soft landing for the US economy in 2024. While there were virtually zero expectations for that outcome at the beginning of this year, a growing consensus of economists on Wall Street now see it as a distinct possibility.

market averages

Edward Jones

A soft landing will occur if the Federal Reserve succeeds in slowing the rate of economic growth, primarily though increasing borrowing costs with higher interest rates, to the extent that the rate of inflation falls to its target of 2%. The other side of the equation is that it must avoid stifling the rate of economic growth too much, and increasing the unemployment rate to such a degree that it causes a recession, which is defined as two consecutive quarters of negative GDP growth. The reason there have been so many doubts about the potential for a soft landing is that they do not happen very often. Arguably, the last one to occur was in 1995 when Chairman Greenspan doubled short-term interest rates from 3% to 6% in an effort to slow an overheating economy.

soft landing

Bloomberg

That cooled the rate of inflation from nearly 3% to the Fed’s target of 2% without seeing a meaningful increase in the unemployment rate.

soft landing

Bloomberg

Chairman Powell has been faced with a far more formidable task, considering that the rate of inflation rose to more than 9% last summer, forcing the Fed to raise short-term rates from near zero to 5.25%. The rate of economic growth has slowed to approximately 2% over the past year, while the unemployment rate has risen from a multi-decade low of 3.4% to 3.8%. Impressively, the rate of inflation has fallen as low as 3.2% before rising more recently to 3.7%, due entirely to the spike in oil prices, which I do not think is sustainable in a slowing-growth environment. The core rate, which is the Fed’s primary focus, should continue to decline, as wage gains and shelter costs keep easing over the coming months.

CPI

Edward Jones

The naysayers claim that the rise in oil prices will continue and spread throughout the economy, forcing the Fed to raise interest rates more, or at least hold them high for longer, to sap demand further. Yet this assumes that the increase in oil prices is demand related when it is not. The recent spike is due to supply cuts from Saudi Arabia and Russia, which has fueled speculative demand for oil futures contracts. That can shift on a dime, and it probably will because sluggish growth in China and softer growth rates globally are not likely to support $90-plus oil for long. The Fed has no control over this, which is why it focuses on the core rate.

More importantly, the Fed focuses on inflation expectations, and there was more good news on that front last week from the University of Michigan in its Survey of Consumers. Americans see inflation averaging 3.1% over the next year, which is down from 3.5% last month and the lowest reading in two and a half years. The five-year expectation fell from 3% to 2.7% This is notable progress for the Fed.

inflation expectations

YahooFinance

As the disinflationary trend continues, we also continue to see signs of economic resilience. Consumer spending growth is returning to pre-pandemic levels just as there are early signs of a recovery in manufacturing. The Empire State Manufacturing Index for September came in sharply higher than expected with expectations for future business conditions rising to its highest level in more than a year. I think this is a harbinger of things to come for the sector, which will be greatly needed as consumer spending on services starts to wane this fall.

consumer spending growth

Edward Jones

It is easy to poke holes in the narrative for a soft landing, because any individual incoming economic data point can be viewed as either too strong or too weak on a standalone basis. We must look at them in aggregate to see continued disinflation combined with a below-trend rate of economic growth that allows the Fed to start loosening its restrictive policy next year and returning its benchmark rate to a neutral level.

Read the full article here

News Room September 18, 2023 September 18, 2023
Share this Article
Facebook Twitter Copy Link Print
Leave a comment Leave a comment

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Finance Weekly Newsletter

Join now for the latest news, tips, and analysis about personal finance, credit cards, dept management, and many more from our experts.
Join Now
Energy groups scrap Texas-backed projects as costs rise

Stay informed with free updatesSimply sign up to the Oil & Gas…

Spain probes cyber weaknesses at small power plants after blackout

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects…

Surge in Chinese listings drives boom for US small-cap IPO market

Unlock the White House Watch newsletter for freeYour guide to what Trump’s…

Saudi Arabia launches AI venture Humain ahead of Donald Trump visit

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects…

‘Tariff-proof’ your finances, housing affordability

Watch full video on YouTube

- Advertisement -
Ad imageAd image

You Might Also Like

News

Energy groups scrap Texas-backed projects as costs rise

By News Room
News

Spain probes cyber weaknesses at small power plants after blackout

By News Room
News

Surge in Chinese listings drives boom for US small-cap IPO market

By News Room
News

Saudi Arabia launches AI venture Humain ahead of Donald Trump visit

By News Room
News

Republicans present plans to gut US support for clean energy

By News Room
News

Proxy adviser ISS backs Elliott in fight against Phillips 66

By News Room
News

Perplexity nears second fundraising in six months at $14bn valuation

By News Room
News

Wall Street stocks soar on US-China tariff reprieve

By News Room
Facebook Twitter Pinterest Youtube Instagram
Company
  • Privacy Policy
  • Terms & Conditions
  • Press Release
  • Contact
  • Advertisement
More Info
  • Newsletter
  • Market Data
  • Credit Cards
  • Videos

Sign Up For Free

Subscribe to our newsletter and don't miss out on our programs, webinars and trainings.

I have read and agree to the terms & conditions
Join Community

2023 © Indepta.com. All Rights Reserved.

Welcome Back!

Sign in to your account

Lost your password?