Economics: A soft landing: the case for and against

Does a soft landing now look more likely in the US?

Markets appear more hopeful of the US economy pulling off a soft landing this year. China’s reopening could support global growth, the US labour market is cooling down, and inflation looks likely to fall further. Is a soft landing now likely? We remain sceptical. 

Further slowing from here looks highly likely.

Some further slowing looks highly probable as the long and variable lags of monetary policy work themselves out. Equally, a soft landing is likely to require the Fed to soften its stance on inflation. That seems unlikely as long as the labour market remains tight. 

We continue to expect a US recession this year.

We remain comfortable with our sub-consensus forecasts for US GDP growth. But we also sense a disconnect between interest rate futures and risk assets. A recession could be required for the Fed to ease this year, but equities and credit don’t reflect that risk.