Hard landing or soft landing? That’s been the yin/yang argument in economist circles since early 2022.
A hard-landing scenario, meaning a recession, seemed to be the likeliest outcome back then. Starting late last year, the notion of a soft landing gained ground—that’s when economic growth and inflation slow, but no recession occurs.
But the latest buzz has been about something in between, when no landing occurs. As Torsten Slok, chief U.S. economist at Apollo Management, told Bloomberg, “There are more and more signs of the market pricing the no-landing scenario where the economy remains strong, and inflation remains sticky and persistent.”
Indeed, vibrant hiring, low unemployment, continued strong retail spending and a mid-single-digit Consumer Price Index are trends that don’t appear to be ebbing—and if so, we would get a no-landing result.
Now, though, considerable pushback has arisen against this thesis. A no-landing outcome “makes no sense,” wrote Jeffrey Roach, chief economist at LPL Financial, in a commentary. How come?
He used the metaphor of a long-distance foot race, where a runner’s pace varies at different stages of the contest. The athlete’s speed is never constant, the way it would be in no-landing scenario. “Runners transition from the acceleration phase” to a slower one after the field has thinned, he wrote.The head of Yardeni Research contended that current inflation is bound to provoke the Federal Reserve into tightening policy to onerous levels—thus creating a recession.
David Rosenberg, chief of his own eponymous research outfit, tweeted that the no-landing concept is a “hoax” and urged investors to “follow the leading indicators, not the Pied Pipers.”
Roach agrees with the notion that today’s economy might be running too hot, thus inviting harsh tightening beyond what many expect. On the positive side, he thinks that a soft landing is more likely. In his report, he pointed to the one time that the Fed engineered a soft landing, in 1994.
The Fed chair at the time, Alan Greenspan, doubled the benchmark fed funds rate to 6%, which cooled the economy—without a recession. At what Roach believes is the first time the “soft landing term was used,” Greenspan was introduced back then at an appearance before the Economic Club of New York as “the pilot we are all counting on for that very smooth and, we hope, very soft landing.”
That accolade, of course, is one the present chair, Jerome Powell, surely would like to receive.
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Tags: Apollo Management, David Rosenberg, Ed Yardeni, hard landing, Jeffrey Roach, LPL Financial, no landing, soft landing, Torsten Slok