Main Topic: U.S. inflation and the Federal Reserve's efforts to control it.
Key Points:
1. U.S. inflation has declined for 12 straight months, but consumer prices increased 3% year-on-year in June.
2. The Federal Reserve aims to reduce inflation to about 2% and plans to raise its key federal funds rate to over 5%.
3. The Fed is concerned about high inflation due to a strong labor market, rising wages, and increased consumer spending, and aims to slow the job market to control inflation.
The U.S. economy is forecasted to be growing rapidly, which is causing concern for the Federal Reserve and those hoping for low interest rates.
The Federal Reserve faces new questions as the U.S. economy continues to perform well despite high interest rates, prompting economists to believe a "soft landing" is possible, with optimism rising for an acceleration of growth and a more sustainable post-pandemic economy.
The US Federal Reserve must consider the possibility of the economy reaccelerating rather than slowing, which could have implications for its inflation fight, according to Richmond Fed President Thomas Barkin. He noted that retail sales were stronger than expected and consumer confidence is rising, potentially leading to higher inflation and a need for further tightening of monetary policy.
The success of the global economy in the coming months rests heavily on the ability of the US Federal Reserve to achieve a "soft landing" in managing growth-inflation dynamics, as many other major economies are facing their own challenges and cannot serve as alternative engines for global growth.
The economy is experiencing a soft landing, but the long-term consequences of easy money policies are still uncertain, with bankruptcies and a potential shakeout in office real estate looming.
The Federal Reserve meeting in September may hold the key to the end of the tightening cycle, as markets anticipate a rate hike in November, aligning with the Fed's thinking on its peak rate. However, disagreement among Fed policymakers regarding the strength of the economy and inflation raises questions about the clarity and certainty of the Fed's guidance. Market skeptics remain uncertain about the possibility of a "soft landing," with sustained economic expansion following a period of tightening.
Morgan Stanley's top economist, Seth Carpenter, believes that the US is nearing a dream economic scenario with falling inflation and steady growth, suggesting that the Federal Reserve is close to achieving a soft landing.
The U.S. economy may achieve a soft landing, as strong labor market, cooling inflation, and consumer savings support economic health and mitigate the risk of a recession, despite the rise in interest rates.
Australia's economy may not experience a soft landing, according to Treasurer Jim Chalmers, due to potential risks such as China's slowing economy and a slump in household consumption resulting from rising interest rates.
Bank of America warns that the US economy still faces the risk of a "hard landing" due to rising oil prices, a strong dollar, and potential interest rate hikes by the Federal Reserve, contrasting with the optimistic outlook of other Wall Street banks.
Economists predict that inflation will cool without a recession, as the effects of rate hikes have already taken shape, putting the US economy on track for a soft landing.
Treasury Secretary Janet Yellen and Goldman Sachs may be optimistic about a "soft landing" scenario for the US economy, but the author remains skeptical due to factors such as a deeply inverted yield curve, declining Leading Economic Indicators, challenges faced by the consumer, global growth concerns, and the lagging impact of the Fed's monetary policy, leading them to maintain a conservative portfolio allocation.
The Federal Reserve faces a critical decision at the end of the year that could determine whether the US economy suffers or inflation exceeds target levels, according to economist Mohamed El-Erian. He suggests the central bank must choose between tolerating inflation at 3% or higher, or risking a downturn in the economy.
Despite economists' hopes for a "soft landing" of the economy, signs such as inflation and uncertain variables make it difficult to determine whether the U.S. economy has achieved this outcome.
Central banks' efforts to combat inflation by raising interest rates have not led to mass job losses, as labor markets in various countries have cooperated by reducing open vacancies and trimming wage growth, suggesting a possible "soft landing" for the economy without significant casualties.
The article discusses the current state of the economy and questions whether the "soft landing" explanation and belief in a full recovery are accurate, particularly in light of China's economic struggles and global inflation concerns.
The Federal Reserve is expected to announce a pause on interest rate hikes due to positive economic indicators and the likelihood of a "soft landing" for the economy, but future decisions will be influenced by factors such as the resumption of student loan payments and a potential government shutdown.
The upcoming U.S. Federal Reserve meeting is generating less attention than usual, indicating that the Fed's job of pursuing maximum employment and price stability is seen as successful, with labor market data and inflation trends supporting this view.
Investors are more focused on the release of new forecasts from the Federal Reserve, which will reveal their views on the prospect of an economic "soft landing" and the rate environment that will accompany it.
The Federal Reserve officials signal that they believe they can control inflation without causing a recession, with forecasts of higher economic growth and unchanged inflation outlook.
Federal Reserve Chair Jerome Powell emphasized the importance of achieving a soft landing, but acknowledged that it is not the baseline expectation, as the central bank aims to execute a tightening campaign without triggering a widespread downturn.
The Federal Reserve has paused raising interest rates and projects that the US will not experience a recession until at least 2027, citing improvement in the economy and a "very smooth landing," though there are still potential risks such as surging oil prices, an auto worker strike, and the threat of a government shutdown.
The Federal Reserve's measure of inflation is disconnected from market conditions, increasing the likelihood of a recession, according to Duke University finance professor Campbell Harvey. If the central bank continues to raise interest rates based on this flawed inflation gauge, the severity of the economic downturn could worsen.
The Federal Reserve left interest rates unchanged while revising its forecasts for economic growth, unemployment, and inflation, indicating a "higher for longer" stance on interest rates and potentially only one more rate hike this year. The Fed aims to achieve a soft landing for the economy and believes it can withstand higher rates, but external complications such as rising oil prices and an auto strike could influence future decisions.
The US economy may struggle to achieve a "soft landing" with low inflation and low unemployment due to several economic uncertainties and headwinds, including toughened lending standards and the resumption of student loan payments, according to experts.
The Federal Reserve's interest-rate forecast is more hawkish than anticipated, with policymakers expecting to hold their key rate a half-percent higher through 2024 and cutting the federal funds rate by just one quarter-point over the next 15 months due to the economy's recent unexpected strength, despite doubts from Wall Street and rising Treasury yields.
The Federal Reserve's power to control the flow of dollars in the US is theoretical, as global credit flows freely and much of it finds its way to the US regardless of the Fed's desires, making the concept of a "soft landing" engineered by central bankers impossible and needless.
Fed Chairman Powell's response that a soft landing is not his base case and that factors outside their control may decide the outcome shocks the stock market, leading to three days of market declines, despite the recent surge in the US economy.
The Federal Reserve's forecast for the U.S. economy shows that while inflation and unemployment are close to their goals, economic growth will remain weak, primarily due to low labor productivity.
Overall inflation has moderated recently in the United States and euro area, but core inflation remains sticky, creating a challenge for central banks trying to meet their inflation targets. Financial conditions have eased, complicating the fight against inflation by preventing a slowdown in aggregate demand. The combination of loose financial conditions and a monetary policy tightening cycle may have dulled the effectiveness of monetary policy. There are risks of a repricing of risk assets and potential vulnerabilities in the financial sector, emphasizing the need for central banks to remain determined in their fight against inflation.
The Federal Reserve is in a better position to deliver a soft landing for the U.S. economy due to facing different problems compared to the 2007-2008 financial crisis, according to F/m Investments CIO and President Alex Morris.
Surging interest rates pose challenges for the US economy and threaten the Federal Reserve's efforts to control inflation without causing a deep recession, as borrowing costs rise for mortgages, auto loans, and credit card debt, and other factors such as higher gas prices, student loan payments, autoworker strikes, and the risk of a government shutdown loom large, potentially reducing consumer spending and slowing economic growth.
The surge in long-term Treasury yields is jeopardizing the Federal Reserve's plans for a soft landing as it keeps interest rates high, increasing the risk of a recession.
The US Federal Reserve should proceed carefully when deciding whether or not to hike interest rates further to bring down inflation, according to two senior officials, as they aim for a "soft landing" to tackle inflation without harming the US economy.
Housing trade groups have warned the Federal Reserve that further interest rate hikes could lead to a hard landing in the form of a recession, and have urged the Fed to take two steps to avoid this outcome.
Some Federal Reserve officials are optimistic about finding a monetary policy that lowers inflation to their 2% target without causing high unemployment, but there are risks that could push the Fed onto a more familiar path of an economy struggling with rising borrowing costs and waning confidence.
Economists are predicting that the U.S. economy is less likely to experience a recession in the next year, with the likelihood dropping below 50% for the first time since last year, thanks to factors such as falling inflation, the Federal Reserve halting interest rate hikes, and a strong labor market.
The U.S. economy is facing risks in 2024 as inflation remains high and interest rates are historically high, leading to concerns about a potential recession; however, the Federal Reserve is optimistic about achieving a soft landing and maintaining economic growth. Economists are divided on whether the Fed's measures will be effective in avoiding a severe recession, and investors are advised to proceed cautiously in their financial decisions.
