For about a year now we have been talking about the predominant forecast of market analysts which projected a recession as early as the second quarter of this year. And for a year we have been stating emphatically that it is tough to have a recession when the job market is hot. Well, the job market may have cooled off a bit, but it is still strong. And the preliminary measure of the economy’s growth in the second quarter came in at 2.4%, which is stronger than the first quarter. What does that mean? No recession is on the horizon.
We also make a habit of not predicting the future. We report other predictions. Thus, we are not saying there will not be a recession. But we will take note of the fact that these economic prognosticators are now saying that a soft landing is more likely. What is a soft landing? Well, if you fall off of a trampoline, you want a soft landing. In economic terms, it means the economy will slow down, but not fall into negative growth territory. Or if we have negative growth during a quarter, it is only slightly negative.
A stronger economy is good news for everyone but the Federal Reserve. The Fed has been trying hard to stop the economy in its tracks. The stronger economy just gives the Fed more fuel to either raise rates again or keep them at this “higher” level for a longer period of time. If inflation continues to cool, we could have the best of both worlds – a strong economy and waning inflation. The July inflation numbers were released recently, and they showed that things continue to move in the right direction, though the numbers were slightly higher than expected. To us, that means we may have to wait a bit longer to see the Fed’s medicine accomplish its task.