No Landing = No Sense

Posted by Jeffrey J. Roach, PhD, Chief Economist

Tuesday, February 21, 2023

The “Landing” Analogy

We need to go back a few years to recall the time investors began using the “landing” analogy. During the hot summer of the mid-1990s, the Honorable Alan Greenspan spoke to the Economic Club of New York, where he was introduced as “the pilot we are all counting on for that very smooth and we hope very soft landing.”[1]

Perhaps that was not the first time market watchers used the term, but the conversations at the Economic Club of New York were prescient. The hope for a soft landing came to fruition. The economy started overheating in 1994, so the former chairman of the Federal Reserve (Fed) raised rates, cooled the overheated economy, and the country escaped a second recession that decade.

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What is a Soft Landing?

A soft landing is when economic growth slows but remains positive as the economy sets up for a long-term sustainable growth path. In contrast, a hard landing means the country falls into recession to break the overheated economic machine. One assumption behind the analogy is an overheated economy is not on a sustainable growth path so policy makers ought to tighten financial conditions to improve the chances the economy can maintain a stable growth rate.

Why a “No Landing” Makes No Sense.

Suggesting an economy makes “no landing” makes no sense. Analogies eventually break down, especially this one. Economic activity does not stop like an airplane eventually does, but rather the economy eventually settles in a steady state where growth is consistent with factors such as population and productivity.

So perhaps it’s time to rethink. One suggestion is using the analogy of a runner. Runners often talk about the various phases of the race. One important phase is when runners transition from the acceleration phase, when runners focus on increasing stride length and frequency, to a steady state, when runners focus on maintaining stride length and frequency over time.

What does this mean for you?

The Fed wants to tighten financial conditions so the economy can smoothly transition from the post-pandemic reopening phase, when the economy grew 5.9% in 2021 and 2.1% in 2022, to a more sustainable rate that neither stokes inflation nor stalls economic growth.

If the economy can break the back of inflation without a deep and prolonged recession, investors will likely experience markets that could return to lower volatility and improved conditions for both bond and equity investors. We think this could be a likely outcome, notwithstanding unforeseen global shocks.



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