Part of the Federal Reserve’s job is to hurt some people. Of course, that’s not in the official job description of Fed officials. (It’s the quiet part that we aren’t supposed to say aloud.)
The official job description is to pursue policy targeting stable prices and maximum sustainable employment. This means that the Fed always wants some number of people to be unemployed.
Ideally, the number of unemployed is low. But if that number is too low, employers are forced to raise wages to attract new workers. Higher wages increase inflation. Low unemployment can result in unstable prices and unsustainable levels of employment.
To increase unemployment as a way to fight inflation, the Fed raises interest rates. This makes money more expensive. Businesses won’t expand as much when rates are high. Some businesses will fail because their profit margin is too low to survive higher interest rates.
Before unemployment becomes too high, however, the Fed will try to reverse course. It’ll begin cutting rates to restart business expansion.
This is a tough job. It’s even tougher when results take a year or more to be seen. That’s how long it takes for interest rate changes to have an impact on economic activity.
In other words, the Fed is guessing what the interest rate should be today to affect inflation and unemployment a year from now.
And there are only two possible outcomes the Fed will see.
If the Fed goes too far, the economy slows too much. That’s a recession. If the Fed gets it right, there’s a soft landing, and the economy will continue growing slowly.
The Fed and Soft Landings
Popular wisdom is that the Fed pulled off a soft landing just once, in 1995. Recent research shows that 5 of the 11 Fed tightening cycles since 1965 were followed by soft landings.
The author of “Landings, Soft and Hard: The Federal Reserve, 1965-2022”, a former Fed Vice Chair, argues that three of the hard landings were caused by external shocks rather than Fed policy.
He believes the 1990 recession was caused by Iraq’s invasion of Kuwait rather than Fed policy. The global financial crisis in 2008 preempted Fed policy. In 2020, the pandemic was the blame for the recession.
If he’s right, only three recessions — 1973 to 1975, 1980 and 1981 to 1982 — were caused by the Fed. Those were also times of high inflation.
And that brings us to today. We have signs that a soft landing is possible.
Employment growth is slowing. The number of job openings is used to measure the strength of the jobs market. The year-over-year change in openings is at levels associated with economic slowdowns.
The chart below shows monthly data collected in the Bureau of Labor Statistics Job Openings and Labor Turnover Survey.
Number of Job Openings Is Falling
Weekly data from Indeed.com confirms the slowdown. That data also shows the slowdown appears to be ending with openings starting to grow again.
While the Fed has a reputation for starting recessions, research shows that may be an incorrect view. A soft landing occurs almost half the time. Job openings give us an indication that another soft landing is on the way.
This would be a shock to many economists. Many investors will also be surprised. This could set off a buying frenzy in the stock market.
Now is the time for us to prepare for that and have a plan for when and what to buy. That’s why here at Banyan Edge, we’re working diligently behind the scenes to uncover and share top investment ideas and strategies to give you the opportunity to profit no matter where the market is headed.
Editor, Precision Profits
Survey Says: Americans Have Lukewarm Expectations
I tend to take consumer surveys with a major grain of salt. The gap between what people say and what they actually do is a wide one.
It’s wide enough to make the Grand Canyon look like a sidewalk crack.
Nevertheless, it’s interesting to see what Americans are saying about their financial situations. Now and then, there are some insights to be gleaned when we see significant changes.
The Federal Reserve Bank of New York just published its August “Survey of Consumer Expectations,” and the general takeaway is that Americans are feeling pretty lukewarm.
American’s feelings about their current financial situation compared to their financial situation a year ago deteriorated slightly in August. And their expectations for the year ahead are also moving in the wrong direction … they’re actually rising.
Interestingly, peak negativity hit about midway through last year. The percentage of Americans that expect to be much better off (or at least somewhat better off) a year from now has been trending higher for a little over a year.
The percentage of Americans expecting their situation to decline a year from now has been trending lower over the same period.
So, what conclusions can we draw from this?
For one, it seems like consumer sentiment seems to be tracking inflation. Sentiment has improved as inflation has moderated … but cruddy sentiment, along with inflation, are both high compared to pre-2020 levels.
Americans should also be considering the very real risks coming down the pipeline. As I have been writing for months now, pandemic-era excess savings have now largely been spent down, and millions of Americans who enjoyed a student loan payment holiday are now on the hook for hundreds of dollars a month in additional expenses.
But it’s not all doom and gloom, of course.
While the economy seems to be stuck in a high-inflation, low-growth rut, we also have the underpinnings of a major, multidecade boom — in the form of artificial intelligence and automation technology.
It’s already helping address the labor shortage in the U.S. economy, and it presents a unique investing opportunity that your Banyan Edge team is tapping into.
In fact, Adam O’Dell has been testing a new trading technology against 24 years of market data.
The results are undeniable.
According to his findings, the AI-driven Infinite Momentum system he has developed had the power to beat the market by 300-to-1.
The equivalent of turning $5,000 into $6.6 million.
And he wants to put this AI system in your hands. All you have to do is click this link here to RSVP for the grand premiere on Tuesday, September 19, at 1 p.m., ET.
Chief Editor, The Banyan Edge