Exploring the “No Landing” Scenario: Will the Economy Avoid a Hard or Soft Landing?
By At the start of 2023, economists were debating whether the Federal Reserve's aggressive interest rate increases would lead to a hard or soft landing – a recession or a gentler slowing down of growth and inflation. Recent economic and market data have revived conversations about a potential soft landing, but now economists are exploring the “no landing” scenario, where inflation remains high and the economy is still strong.[0]
Under this no landing scenario, inflation does not cool and economic growth continues, even as interest rates remain elevated.[1] This means job adds remain strong, service measures of the economy stay in expansion territory and manufacturing and housing bounce back in the coming months.[2]
Postponing a hard vs. soft landing debate is only postponed, not avoided, by a “no landing” approach.[2] The Fed will continue to raise interest rates until they feel that growth is slowing and inflationary pressures are no longer present.[3]
Overall, the no landing scenario would likely bring back the volatile market action we saw in 2022 because it reintroduces uncertainty about inflation and the Federal Reserve.[4] It also means central banks will continue to implement restrictive policies like higher interest rates for longer.[5]
Ultimately, the no landing scenario is not desirable because it delays the point where the Fed can pivot to a more supportive stance for the economy.[3] As we wait for inflation to decelerate and central banks to ease up on their rate hiking campaigns, market watchers will be closely watching to see if the Fed’s monetary policy engineering will ground the economy via a soft or hard landing.
0. “Breaking down the ‘no landing' buzz: What it means for investors” Yahoo Canada Finance, 18 Feb. 2023, https://ca.finance.yahoo.com/video/breaking-down-no-landing-buzz-100005412.html
1. “No landing?” FXStreet, 17 Feb. 2023, https://www.fxstreet.com/analysis/no-landing-202302170707
2. “Bracing for a ‘No Landing’” Stock Investor, 15 Feb. 2023, https://www.stockinvestor.com/56452/bracing-for-a-no-landing
3. “Fed recession: Hard landing, soft landing, and no landing scenarios explained” Yahoo Canada Finance, 16 Feb. 2023, https://ca.finance.yahoo.com/video/fed-recession-hard-landing-soft-161144290.html
4. “Why there is no such thing as a ‘no landing' scenario for the economy: Morning Brief” Yahoo Money, 17 Feb. 2023, https://money.yahoo.com/why-there-is-no-such-thing-as-a-no-landing-scenario-for-the-economy-morning-brief-103043131.html
5. “Nasdaq 100: Hard landing or soft landing? What about NO landing!” FOREX.com, 16 Feb. 2023, https://www.forex.com/en/market-analysis/latest-research/nasdaq-100-hard-landing-or-soft-landing-what-about-no-landing/
