A soft landing appears increasingly likely for the US economy right now, as GDP growth slowdown indicators suggest controlled deceleration rather than recession. The Federal Reserve interest rates strategy is showing results, with inflation control measures taking effect while economic recession risk remains manageable. At the time of writing, economists are cautiously optimistic about achieving this delicate balance.

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Economic Indicators Point to Controlled Slowdown

GDP Growth Shows Strategic Deceleration

The current GDP figures reveal an interesting pattern that supports the soft landing thesis. At $29.96 trillion, the US economy posted a 0.80% increase from the previous quarter and also managed a 4.67% rise compared to the same quarter last year. This GDP growth slowdown is being carefully monitored by policymakers who view it as a necessary cooling rather than a warning sign.

The controlled nature of this deceleration suggests that the soft landing scenario is unfolding as intended. Economic data shows that while growth is moderating, it’s doing so at a pace that allows for adjustment without triggering severe disruptions.

Federal Reserve Interest Rates Drive Cooling

The Federal Reserve has implemented measured and strategic interest rate policies during this cycle. Federal Reserve Chair Jerome Powell has highlighted the Fed’s successful soft landing experiences in earlier periods, specifically citing victories in 1965 and 1984.

In 1965 and 1984, the Fed managed to make soft landings, and policymakers were implementing a third one in 2020 until COVID-19 derailed their plans. This gives us a good case history in understanding the current soft landing experiment being run.

The Fed’s history shows mixed results but demonstrates that policymakers can achieve this balance of allowing growth while controlling inflation when they maintain the right conditions and exercise discipline in managing federal reserve interest rates.

Inflation Control Measures Take Effect

Currently inflation rates are trending downward, which represents a very essential part of any soft landing. The Federal Reserve is successfully implementing inflation control by strategically increasing rates, and these efforts are producing noticeable results. Consumer spending continues to hold up despite the cooling measures, and this demonstrates that the economy can handle the required adjustments.

Authorities have tamed inflation through a gradual but successful process. Economic indicators show that price pressures are easing without the dramatic slowdown that hard landings typically cause. Policymakers must carefully balance this approach to maintain economic stability while addressing inflationary concerns.

Economic Recession Risk Remains Limited

Economists use past records as the foundation for evaluating present-day economic recession risk. Five previous instances when inflation reached double digits above 5 percent – 1970, 1974, 1980, 1990, and 2008 – all preceded recessions. However, the current situation displays some major qualities that indicate a soft landing can occur.

The labor market is not moving on a very dangerous trend because the unemployment rates are low and employment is increasing, but at a decreasing rate. Such strength of employment is one of the most prominent indicators that break the similarity between the current situation and the previous situations that caused recession. Industry projections indicate that there will be a reduced growth rate of GDP in the year 2025, and crucially, not the contraction of the economy.

Such a difference is essential in comprehending why numerous economists consider the soft landing scenario not only possible, but probable.

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Former Federal Reserve chair Ben Bernanke was clear about the fact that:

“If making monetary policy is like driving a car, then the car is one that has an unreliable speedometer, a foggy windshield, and a tendency to respond unpredictably and with a delay to the accelerator or the brake.”

This analogy underlines the fact that a soft landing is not easy to achieve, yet the modern economic reality indicates that the policymakers are coping with all the difficulties. This is an ideal state of affairs brought about by a slowdown in the GDP growth rate which is well controlled, inflation well checked, well-developed policy of interest rates and federal reserve along with limited risks of economic recession.