• Mon. Feb 26th, 2024

Soft Landing for US Economy Faces Challenges due to Fed’s Interest Rate Hikes and Improved Financial Conditions


Feb 12, 2024
US Unlikely to Experience Soft Landing

According to Apollo Management’s chief economist, Torsten Sløk, a soft landing for the US economy is currently unlikely. He has stated that this outcome has less than a 50% chance of occurring due to the delicate balance between easing financial conditions and the lingering effects of the Fed’s interest rate hikes.

Initially, Sløk was optimistic about a soft landing, but new economic data has caused his views to shift. One of the factors behind this change is the improved financial conditions in the economy. Companies are issuing more high-yield and investment-grade bonds, and there is a resurgence in the IPO market. Additionally, mergers and acquisitions have increased significantly. These improvements have also contributed to a stronger job market, with January’s jobs report adding 353,000 jobs to the economy. However, despite these positive developments, the lagged effects of the Fed’s rate hikes continue to slow down consumers, firms, and bank lending. This results in high interest rates and makes borrowing money more expensive.

The latest data leaves the economy in a precarious equilibrium between these opposing forces, making it increasingly difficult for a soft landing to occur as predicted by Sløk.

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