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A Soft Landing Is Playing Out–But Optimism Needs to Be for the Right Reasons

Inflation and wage growth have slowed, but unemployment remains at a record low, making a soft landing possible for the U.S. economy.

This research was published on January 30, 2023

After a year of excessive gloom, the recent improvement in sentiment is a sharp turn. Equity markets have moved away from their lows while fears of inevitable recession have been replaced by optimism about avoiding one.

Having emphasized the economy’s resilience throughout last year, this shift in sentiment is warranted in our view–but the new optimism should be for the right reasons. Rapid disinflation, widely predicted and likely to continue, will not be enough to unwind tight monetary policy, which is driving recession risk.