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The new consensus on Wall Street: The chances of a soft landing have improved significantly
The new consensus among Wall Street's top investment bankers is that the U.S. economy is poised for a soft landing.
On Tuesday March 7th David Solomon, chief executive of Goldman Sachs Group Inc., said the chances of a soft landing in the U.S. economy are "significantly higher" now than they were six months ago.
Solomon spoke at the RBC Capital Markets Global Financial Institutions Conference on Tuesday.
The chances of a soft landing in 2023 and 2024 are higher than I thought even six months ago.
So far, the Fed seems to be doing a good job.
Solomon also said Goldman has made "significant changes" in its business in the face of uncertainty from the external environment and Fed policy.
A so-called soft landing is what the Fed has been hoping to achieve -- slowing the economy and bringing inflation back down by raising interest rates without mass unemployment and a recession.
On Monday, jpmorgan Chase CEO Jamie Dimon made a similar forecast for the U.S. economy. He said there was hope that the United States could avoid a severe recession and "still manage a soft landing."
Dimon pointed to current challenges facing the U.S. economy, including conflict in Europe and supply chain problems. In a similar vein, Solomon notes the negative factors for the U.S. economy:
I think you have to be prepared because the future may be more difficult than the present. This does not mean the US economy is about to derail like a train. So far, the Fed seems to be doing a good job, but there's still a lot going on around the world, and it's a time of uncertainty.
Bank of America Chief Executive Brian Moynihan said this week that he expects to "see a slowdown in the economy, and frankly, a lot of people won't see that much." However, the current US economy is likely to be "more like a technical recession".
Terrance Dolan, chief financial officer of another US bank, Bancorp, said on Tuesday that his company's executives still expect a mild recession in the US, but it has been delayed:
A soft landing is a good way to describe what's going on.
In late February, U.S. Treasury Secretary Janet Yellen said the U.S. economy is on track for a soft landing, thanks to a strong labor market and no balance sheet problems like before the global financial crisis:
I think a soft landing is a possible outcome and one that I hope can be achieved. The economy is basically in good shape, and inflation is falling when measured over a 12-month span.
While Wall Street and top U.S. officials are bullish about a soft landing, authors of a research paper published last month, including former Federal Reserve Governor Frederic Mishkin, said the chances of a soft landing were low.
The paper says Fed policymakers are still too optimistic about the outlook and will need to inflict some economic pain to get inflation under control. The paper says:
Our analysis casts doubt on the Fed's ability to achieve a soft landing, in which inflation returns to its 2% target by the end of 2025 without a mild recession.
The 55-page academic paper includes a series of simulation scenarios to predict the likely path of policy rates. According to the paper's model and different assumptions, the US federal policy rate will peak at 5.6 per cent, 6 per cent or 6.5 per cent in the second half of 2023.
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The market is risky and investment needs to be cautious. This article does not constitute personal investment advice and does not take into account the particular investment objectives, financial situation or needs of individual users. Users should consider whether any opinion, opinion or conclusion in this article fits their particular situation. Invest accordingly at your own risk.