The Wall Street Journal reported on the 15th that the U.S. economy is nearing a so-called soft landing, in which the surge in prices after the pandemic is brought down without a recession.
The Wall Street Journal said the economy is showing a favorable trend as slowing inflation, solid growth, and a steady labor market appear at the same time. In fact, the core consumer price index in January rose 2.5% from a year earlier, the lowest increase since March 2021, and the unemployment rate fell to 4.3%. Nonfarm payrolls also increased by 130,000 from the previous month, beating market expectations.
Still, caution is growing that it is too soon to see a soft landing as a done deal. The personal consumption expenditures price index, which the Federal Reserve prioritizes, rose 2.8% as of November last year, still above the 2% target. Within the Fed, there is also a mood that does not rule out the possibility of inflation reaccelerating. The year-end PCE inflation forecast is also 2.4%, implying further slowing is needed to reach the target.
Questions also remain about the labor market's strength. After benchmark revisions to employment statistics, last year's average monthly job gains were only 15,000, and the fact that the increase was concentrated in the medical institutional sector is a concern. The market sees a possibility that a "no hire, no fire" phase, in which both layoffs and hiring are subdued, could continue.
Consumption and the asset market are also variables. If household asset values, buoyed by a strong stock market, are adjusted, consumption could weaken and growth momentum could fade. Conversely, if consumption is excessively strong, it could slow the easing of inflation. On top of that, the pass-through to consumers of tariff expense, expansionary fiscal policy ahead of the midterm elections, and potential political pressure on currency policy are converging, strengthening the diagnosis that a soft landing for the U.S. economy remains a "work in progress."