Optimism for a Soft Economic Landing May Underestimate Growing Recession Risks

Hopes remain high that the Fed can engineer an economic “soft landing.” But with risks mounting, are overconfident assumptions setting up for disappointment?

The baseline outlook envisions inflation coming down as growth slows moderately. With no recession, markets stabilize allowing further hikes to defeat lingering price pressures.

This gracefully optimistic scenario assumes consumers keep spending, companies maintain hiring, and markets stay resilient.

However, markets often turn when least expected. Once downturns start, negative dynamics can feed on themselves.

Already, leading indicators like manufacturing surveys are faltering. Rate-sensitive housing and autos are reversing. Company earnings are declining.

Meanwhile, the Fed remains fixated on inflation, resolute to keep tightening aggressively despite the impacts. Its delayed response means playing catchup.

Far from guaranteed, the Fed now faces an extremely narrow path to tread. Having waited too long, its hard stance risks provoking the recession it hopes to avoid.

Rather than assuming resilience, prudence suggests preparing for alternative scenarios. A credible soft landing exists, but shocks could derail it fast. Staying flexible and vigilant is key.