JPMorgan says the economy is on track for a soft landing
Wall Street megabank JPMorgan Chase believes the Federal Reserve has largely succeeded in delivering a “soft landing” for the U.S. economy.
During its third-quarter earnings call, chief financial officer Jeremy Barnum said JPMorgan’s lending business remains strong thanks to strong consumer spending and business confidence.
“These results are consistent with a soft landing,” said Barnum. “That’s pretty consistent with this kind of Goldilocks economic situation.”
Barnum’s outlook is supported by a gradual cooling in headline inflation over the past six months and sustained job growth.
As the Bureau of Labor Statistics reported earlier this month, U.S. employers added 254,000 workers to payrolls in September—vastly exceeding expectations.
While these figures are subject to interpretation—and, possibly, downward revision—the overall economy doesn’t appear to be heading for a recession like many had feared.
America’s GDP expanded 3% annually in the second quarter, and analysts at Goldman Sachs expect a similar growth pace in the third quarter.
Despite JPMorgan’s optimism, not everyone is convinced of a smooth landing. Several economists argue that a true soft landing requires more than just positive economic growth.
Soft landing or no landing?
For the Fed, a soft landing is a situation where inflation cools along with the broader economy.
However, as Business Insider’s Jennifer Sor recently reported, the latest economic data are more consistent with a “no-landing” scenario, where the economy continues to grow but in a way that keeps inflation from falling in a meaningful way.
While the Consumer Price Index (CPI) continues to trend lower, certain inflation categories, like food and housing, remain stubbornly high.
As Creditnews recently reported, food and housing account for nearly 46% of household budgets. For the average American family, a falling CPI has done very little to alleviate their cost pressures.
This no-landing scenario could get worse now that the Fed is committed to reducing interest rates—a process that could reignite inflation.
Chicago Fed Bank President Austan Goolsbee recently told Fox Business that there’s “going to be a lot of cuts” over the next 12 months as policymakers “get the rates down to normal.”
Fed Governor Christopher Waller also “sees a lot of room” for more rate reductions over the next year.
If inflation proves to be as stubborn as some suggest, the Fed could be “back [to] raising interest rates sooner than anyone expects,” wrote Steven Blitz, the chief U.S. economist at TS Lombard.
“The risk of this bad outcome arriving sooner than later rests [with a situation that] markets are not pricing—that there is no landing at all,” said Blitz.
Against this backdrop, Yardeni Research president Ed Yardeni recently opined that the central bank could be done cutting rates for the rest of 2024.
Yardeni’s outlook defies current market forecasts, in which investors expect back-to-back rate cuts in November and December.
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- Former Treasury Secretary says Fed’s 0.5% rate cut was ‘a mistake’