Soft Landing Imminent But Who Is Flying The Plane?

Soft Landing Imminent But Who Is Flying The Plane?

October 09, 2023

Today’s Fed announcement on the fed funds rate was completely expected. Pause on rate hikes, maybe one more hike later, data dependent, etc. Meh.

But if you look out at the longer-term prognostications from committee members, the FOMC (federal reserve open markets committee) clearly believes a recession will be avoided and interest rates will pretty much stay steady. What’s that mean to us humans and what exactly is a soft landing? And why does it sound slightly threatening?

When the Fed decides things are running too hot, they typically raise interest rates to slow inflation, but very often that causes a recession. And that’s about where we are today, waiting on the most unanimously predicted recession ever. Except, the economy never got all that hot, inflation cropped up for atypical reasons and the Fed reacted predictably. They were aggressive in terms of the pace of raising rates, but, so far, we have seen quite better-than-expected economic data and no recession. Perhaps the lag effect has been delayed… for sure the soft-landing scenario seems temptingly possible.

Think of a plane taking off the runway. That’s the Fed making their initial rate hike. Now imagine the plane landing, with no issues and no big crisis. That’s the Fed stopping a rate hiking regime and NOT suffering thru a recession. In modern times, that has only happened once. This is not a routine flight.

Investors seem to be praying for a soft landing. But long-term, strategic investors know that the volatility and uncertainty that is normal for markets is what makes the investing process so profitable. Time invested is much better than “timing investment,” and we believe in our process.

As pilots to the future, we do a lot of planning for contingencies, surprises and unexpected outcomes, but we never lose sight of the necessity to land the plane. Your trust is much appreciated.


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