Will inflation come down after U.S. economy’s soft landing?

The vast majority of analysts forecasted a recession in the second half of 2023. We are now more than half-way through the second half and there are no signs of a recession, except in the housing sector. However, the economy continues to slow down from the solid growth of the first half of the year. Now most economists are saying that there is a good chance of a soft landing. But what exactly is a soft landing and what would it look like for the consumer?

From Wikipedia -- A soft landing in the business cycle is the process of an economy shifting from growth to slow-growth to potentially flat, as it approaches but avoids a recession. It is usually caused by government attempts to slow down inflation. Thus, a soft landing would be characterized by lower inflation and economic growth of zero to 1.0% per quarter. The classic definition of a recession would be two consecutive quarters of negative economic growth. We saw that during the pandemic induced recession, but those were certainly unprecedented circumstances.

The next question is --- will inflation come down during a soft landing? If inflation returns to the Fed target of 2.0%, it is much more likely that interest rates will also come down. If inflation stays high during a soft landing, then we are talking about the phenomenon of “stagflation.” Assuming stagflation is not in the cards and rates come down, we can add one more question. Would lower rates immediately supercharge the economy again? Certainly, there is a lot of pent-up demand in the real estate sector. We believe that the last quarter of this year and the first quarter of next year will be very telling with regard to answering these questions.