MNI: Soft Landing For US Economy Still Possible -Fed Paper
Fed Governor Chris Waller co-authors a research paper on the Beveridge curve.
The U.S. economy has been in a soft landing since early 2022 and that could well continue, according to a paper co-authored by Federal Reserve Governor Chris Waller published Friday.
Vacancies have dropped significantly with little to no increase in unemployment across the country and in other parts of the world, supporting the idea that the Beveridge curve can be very steep and nonlinear, Waller and Fed economist Andrew Figura write in a Fed Board publication.
"In a situation where labor demand and vacancies are extremely high and labor shortages abound, it is possible for vacancies to decline without layoffs increasing, or at the least, it is advisable to consider this possibility," they said.
"Looking ahead, we note that the labor market is not fully back to where it was prior to the pandemic, and inflation remains significantly above the FOMC’s 2% target. As a result, it is possible that a soft landing will not occur," the authors said.
A recession could take hold if firms and households pull back on spending or if the economy sees another adverse supply shock that pushes inflation higher, they said.
"Though these are important risks, most professional forecasters continue to project a soft landing with the unemployment rate rising only modestly and the inflation rate moving down toward the FOMC’s 2% target. Clearly, they also believe that a soft landing in the labor market is possible."
The FOMC launched its easing cycle this week after raising rates to a 23-year high to combat high inflation. It lowered the fed funds rate target by 50 basis points and said more cuts will follow. (See: MNI INTERVIEW: Fed Can Cut Gradually If Jobs Stay Strong- Kohn)