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Is the US Economy Headed for a Soft Landing?

Despite the confidence with which many analysts proclaim that a severe recession is inevitable, there is no reason to assume that the US economy will experience a major downturn this year or in 2024. While inflation is still above the Federal Reserve’s 2% target, it could stabilize at 3-4% over the next 12 months.

CAMBRIDGE – A skydiver leaps out of an airplane and discovers that his parachute will not open. On his way down, he encounters a hang glider who asks him how he is doing. The free-falling man shouts back, “Okay, so far!”

For many, the US economy these days bears a striking resemblance to the parachutist. Ever since March 2022, when the Federal Reserve began to hike interest rates and shrink its balance sheet, the consensus among economists has been that the United States is headed toward a hard landing. Many economists have been confidently forecasting a recession for over a year, with some even asserting that the economy has already started to contract.

The inverted yield curve in bond markets suggests that the financial sector has also been bracing for a recession. In fact, the term “recession” has appeared more prominently in news media over the past year than is typically the case during an actual downturn. This view has clearly resonated with the general public, with a May 2022 poll finding that 55% of Americans believed that the US was already in a recession, compared to 21% who disagreed.