Economists Believe US is Poised for Soft Landing

After months of speculation about how much the Fed will cut interest rates and if the timing will be right to produce a soft landing and avoid a recession, the country is about to get its answer.

While we waited, the economy has largely been in a state of what some economists have called a ‘vibecession’ – a disconnect between the actual state of the economy and people’s largely negative perception of their financial condition. As the Fed’s decision draws near and inflation trends toward target levels of 2%, consumer sentiment and economic reality are starting to converge.

Whether this alignment continues depends on what the Fed decides to do with interest rates this week, but there are several positive indicators about the probability of a soft landing. Notably, many interest rates have already begun to fall in anticipation of cuts. For example, the average 30-year mortgage rate has dropped to 6.2% from a peak of nearly 7.8%. The yield on five-year Treasury notes, which impact auto loan rates, has also come down.

More than 90% of economists recently polled by the Financial Times think the Fed will opt for a quarter-point cut, while 40% expect its policy rate to fall by three-quarters of a percentage point or more this year.

This means businesses will be able to borrow at lower rates than they have for at least a year and could boost investment spending. In particular, lower mortgage rates should energize the residential real estate market, prompting homeowners who have been holding on to property to consider selling and allowing young home buyers to enter the market after being limited by supply. In addition, lower rates typically lead consumers to refinance high-interest credit card debt, which will potentially ease the financial burden many Americans have been feeling.

However, another question mark on the economic horizon is the upcoming presidential election less than eight weeks away. Both candidates have distinctly different economic platforms, according to FT. Former president Donald Trump touts tariffs, tax breaks for corporations and deregulation while Vice President Kamala Harris focuses on tackling price-gouging and raising taxes on the wealthy and big businesses, according to the FT. Asked whose economic platform would be more inflationary, 70% of the economists surveyed picked Trump’s policies and the same proportion thought his plan would lead to larger deficits, FT said.