The path to a “soft landing” doesn’t seem as smooth as it did four months ago. But the expectations of a year ago have been surpassed.
The economic news of the past two weeks has been enough to leave even seasoned observers feeling whipsawed. The unemployment rate fell. Inflation rose. The stock market plunged, then rebounded, then dropped again.
Take a step back, however, and the picture comes into sharper focus.
Compared with the outlook in December, when the economy seemed to be on a glide path to a surprisingly smooth “soft landing,” the recent news has been disappointing. Inflation has proved more stubborn than hoped. Interest rates are likely to stay at their current level, the highest in decades, at least into the summer, if not into next year.
Shift the comparison point back just a bit, however, to the beginning of last year, and the story changes. Back then, forecasters were widely predicting a recession, convinced that the Federal Reserve’s efforts to control inflation would inevitably result in job losses, bankruptcies and foreclosures. And yet inflation, even accounting for its recent hiccups, has cooled significantly, while the rest of the economy has so far escaped significant damage.
“It seems churlish to complain about where we are right now,” said Wendy Edelberg, director of the Hamilton Project, an economic policy arm of the Brookings Institution. “This has been a really remarkably painless slowdown given what we all worried about.”
The monthly gyrations in consumer prices, job growth and other indicators matter intensely to investors, for whom every hundredth of a percentage point in Treasury yields can affect billions of dollars in trades.
But for pretty much everyone else, what matters is the somewhat longer run. And from that perspective, the economic outlook has shifted in some subtle but important ways.