US Economy Gearing Towards 'Soft Landing' Amid Inflation Concerns, Predict Economists

Notwithstanding the fears of inflation, economists are optimistic about the U.S. economy achieving a rare “soft landing.” This implies a return to pre-pandemic inflation rates without triggering a recession or substantial economic downturn.

What Happened: As reported by The Wall Street Journal, economists are predicting an economic slowdown, but they do not expect a severe contraction in the gross domestic product. This perspective marks a shift from six months ago when a recession was predicted for the year ahead.

"What we are expecting now is a soft landing,” according to Nancy Vanden Houten, lead U.S. economist at Oxford Economics. 

She added "We expect the economy to weaken quite a bit, but it does look like we'll avoid an outright contraction" in gross domestic product.

Although the inflation rate peaked at 9.1% last year, the highest in 40 years, it has since been moderated, with the Federal Reserve increasing interest rates to between 5.25% and 5.5%. As a result, inflation reduced to 3.2% in October, with core inflation at a 2.8% annual rate over five months.

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Still, a soft landing is not guaranteed. Economic instability caused by external factors such as energy prices or a financial crisis could still occur. Additionally, the American consumer, a significant driver of recent growth, may be slowing as retail sales dropped in October for the first time since March.

"It looks like a soft landing until there's some turbulence and things get hairier," said economist Nick Bunker at Indeed who studies the labor market.

Despite potential hurdles, the U.S. economy has shown remarkable durability. Growth has accelerated to an annualized rate of 4.9% in the third quarter. Plus, an average of 204,000 jobs were added each month over three months through October.

Why It Matters: The prospect of a ‘soft landing’ for the U.S. economy is significant as it signals robust economic resilience amidst global uncertainties. The role of the Federal Reserve in controlling inflation rates and maintaining economic stability is vital. However, the possible slowdown of the American consumer and the potential impact of external factors such as energy prices or financial crises remains a concern. These elements play a crucial role in determining whether the U.S. economy can successfully achieve a soft landing and continue on its path of growth.

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