Soft Landing Ahead?

From last week’s jobless claims, we learned that the labor market remains strong and reasonably overheated. At the same time, wage inflation continues to decline, partially driven by an increase in immigration. In the week ahead, it’s likely that the January employment report will show little movement in the unemployment rate or in the number of jobs created from January vs. December. The bottom line is that the overall US economy continues to hold strong, despite some weakening in areas like manufacturing and housing (and other interest-rate sensitive segments of the economy). The Federal Reserve is expected to raise interest rates by 25 basis points at their meeting this week. What’s somewhat surprising is that despite raising rates since March of 2022 to cool the economy down, financial conditions are now at the same level they were when that process started. Since October, we’ve seen a rally in stocks and credit spreads—as markets price in the scenario that the Fed may soon be done raising rates. For every month that inflation ticks lower and the economy stays strong, we get closer to a soft landing.

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