Recent inflation data counterbalances the sentiment traders perceive following Powell’s latest speech on interest rates. No more soft landings?
Ever since the Federal Reserve began raising interest rates from the zero level in March of last year, economists have often debated how the economy of Western countries would react faced with this financial structural alteration. There has been a lot of talk about hard and soft landing wondering whether with all these sudden rate hikes by central banks there would have been a global recession or partial. In summary, will the economy survive the worst inflationary wave since the 1970s without experiencing any contraction?
What is happening macroeconomically in the United States?
Some sectors have already undergone significant downsizing in their businesses while others seem to have even been advantaged from this economic context. The construction and technology sectors, for example, are those that have suffered the most negative consequences while the banking business, especially in Europe, has instead benefited from the rise in interest rates.
However, many economists find it difficult to share their perspectives as macroeconomic data provide contrasting indications. Surprisingly, the unemployment rate fell to its lowest level since 1969 in January. Goldman Sachs Group lowered the probability of a slowdown in the next 12 months from 35% to 25% . Similarly, inflation grows in the United States and in January it marks an increase of 0.5% and the annual figure goes to 6.4%. In summary, inflation is slowing down but less than expected and this greatly frightens macroeconomic analyses: apparently it was the basic necessities goods sector and the increase in house prices, one of the sectors that should be hit the hardest by the increase in interest rates.
So will there really be a soft landing?
For many experts there is no surprise in the face of this event: the markets work on the basis of expectations and if there is a soft landing in the perspectives of the various economic players, it is natural that the economic engine turn on again. This is demonstrated by the stock market restart of the shares of the most speculative securities which began with the stroke of 2023. It is no coincidence that among the best performing sectors is the technological one which together with real estate should have been one of the sectors most affected by the consequences of the Fed’s monetary policy. Some economists recently speak of a slowdown of the "rolling" type: a minimal and partial contraction characterizing only some sectors while the economy as a whole remains solid by maintaining a very strong labour market. This would still be a form of soft landing as it would not affect family budgets directly and in a continuous manner.
Original article published on Money.it Italy 2023-02-16 15:51:00. Original title: Addio al Soft Landing? Tornano i rischi di recessione
