In a recent speech at the Federal Reserve’s San Francisco regional bank, Fed Gov. Lisa Cook discussed the potential for a “soft landing” in regards to inflation and unemployment. While Cook believes that a soft landing is possible, she also highlights that it is not guaranteed. The hope for a soft landing is fueled by the release of consumer-inflation data, which suggests that the economy may not need to go through a recession in order to bring inflation back to the Fed’s desired 2% target.
The financial markets have already priced in 100 basis points of rate cuts for next year, reflecting the anticipation of a softer approach by the Fed. However, Cook expresses concerns about the Fed’s past actions, suggesting that they may not have tightened monetary policy enough. Additionally, she acknowledges that the economy is currently struggling due to higher interest rates.
Specifically, Cook mentions that certain sectors of the economy are feeling the strain from tighter financial conditions. Lower-income households have depleted their excess savings, and delinquencies on auto loans and credit cards have reached pre-pandemic levels or even exceeded them. Small businesses are also encountering difficulties with credit conditions and higher interest rates as they try to roll over their short-term loans.
Considering these challenges, Cook raises the possibility that small businesses, the housing sector, and low- to moderate-income households could be indicating broader stress ahead. This observation highlights the interconnectedness of different aspects of the economy and emphasizes the need for further analysis and attention to prevent any potential crisis.
As Cook gives her speech, the stock market experiences a dip in midday trading on Thursday. Meanwhile, the yield on the 10-year Treasury note falls to 4.47%, reflecting investors’ response to the economic climate.
In conclusion, there is hope for a soft landing in terms of inflation and unemployment, but it is not guaranteed. The challenges faced by certain sectors of the economy and the concerns raised by Cook emphasize the need for ongoing evaluation and strategic action to navigate through these uncertain times.