Torsten Sløk, chief economist at Apollo Management, has stated that a soft landing for the US economy is currently unlikely. He believes that this outcome has less than a 50% chance of occurring due to the precarious balance between easing financial conditions and the lingering effects of the Fed’s interest rate hikes.
Previously, Sløk had been a proponent of a soft landing. However, his opinion has shifted as new economic data continues to emerge. One factor behind this change is the improved financial conditions in the economy. Companies are issuing more high-yield and investment-grade bonds, the IPO market is reviving, and mergers and acquisitions are increasing. These improvements have also contributed to a stronger job market, with January’s jobs report adding 353,000 jobs to the economy.
However, despite these positive developments, the lagged effects of the Fed’s rate hikes are slowing down consumers, firms, and bank lending. High interest rates make borrowing money more expensive for both businesses and individuals alike. This makes it harder for companies to invest in growth opportunities or expand their operations, while also making it more difficult for individuals to afford loans for large purchases like homes or cars.
As a result of these opposing forces, the US economy is currently in a fragile equilibrium that makes a soft landing seem unlikely. In other words