Did the Fed just stick the landing?
The U.S. economy remains steady
This past week the Fed kept its target interest rate at 5.25 percent, as expected. The reason? The U.S. economy maintained its maintaining. In their press release the Fed cited that “economic activity has continued to expand at a solid pace,” and that, “ there has been some further progress toward the Committee's 2 percent inflation objective”—all of which has been consistently documented by this blog.
Yet, in spite of the regular stream of positive economic data (perhaps over-looked due to more appealing patriotic events) what sort of headlines did Macrosight see this week? . . . concerns about the Fed being able to pull off a soft-landing . . . what??!?
Practice? We’re talkin’ about practice?
To this blog, talk of a soft-landing is, at this point is silly, if not moot. Recall, the gist of “pulling off” a soft-landing is the Fed being able to raise interest rates in order to slow inflation, without sending the economy into a recession.
Macrosight covered the concept back in January. Yet, since January—and since the Fed starting raising its rate in March of 2022—real GDP continues to increase, consumers keep spending, the unemployment rate remains at historical lows and inflation continues to disinflate!
Yet, now some media outlets are suggesting that once the Fed cuts rates this fall, they might fail to pull off a soft-landing? Again, what??!?
Doesn’t Anyone Notice This?
To remind ourselves of the state of our macroeconomy, Table 1 displays the recent averages of the “big three” macroeconomic statistics over our current economic expansion compared to the previous two expansions. Table 1 is a modified version of the information presented in this post from a little over month ago.
As was emphasized in this post, the macro data during our current economic expansion have been well-in-line with the two previous expansions since 2000. (Technically, our current expansion began in the third quarter of 2020.)
If we focus on 2024, GDP growth looks to be slowing relative to our post-2020 experience. On the bright side, however, the 2.1 percent value is the average of 1.8 percent for Q1 and 2.8 percent for Q2; the latter of which is closer to the pre-2020 averages.
Similarly, the inflation picture has improved the past six-months, as suggested by the 2.8 percent average for the Consumer Price index shown in Table 1. In addition, earlier this week the Bureau of Economic Analysis (BEA), released the June inflation number based on the Personal Consumption Expenditures Price Index. Based on that index, consumer price inflation in June was less than 0.08 percent, barely higher than the tepid 0.03 increase in May (or 0.95 and 0.36 annualized, respectively).
While the unemployment rate has ticked up as of late—going from 4.1 percent in May to 4.3 percent in June—we are still below what is considered “normal” for this labor market metric.
Aside from the “big three” statistics, consumer spending has been resilient, if not robust. Macrosight has chronicled that fact here, here and here (among many other posts found in the archive). And, the latest reading for June (released just this week by the BEA) provides corroborating encouragement. Consumer spending (adjusted for inflation) increased by an annualized 2.6 percent in June.
Sticking the Landing
Perhaps out of annoyance at the-sky-is-always-falling macroeconomic news, Macrosight might justly be accused of leaning too heavily on an optimistic reading of macro data. So, perhaps the cynics are right. The rate of inflation has not yet disinflated back to the Fed’s 2.0 percent target. The unemployment rate, as just noted, has increased. Indeed, the business cycle can turn at any moment, right out from under us.
Yet, I still say speculating on whether or not the Fed is going to pull off a soft-landing is, frankly, stupid. The economy has endured in spite of interest rate increases AND average inflation is now under 3.0 percent. If anything, the Fed has already stuck said landing!
When discussing soft-landings, if we have already moved onto anticipating upcoming interest rate cuts, doesn’t that imply the landing has been stuck, if not softly? It seems so to this macroenthusiast.