Is It Just Me Or Does It Really Feel Like The Economy Is Falling Off A Cliff?
Unless you live on Mars, you’ve probably had conversations with friends, relatives, and acquaintances about the tightening economy, as of late. It seems that everyone (or almost) everyone has been feeling the impact of higher prices and higher interest rates; this makes sense. Once prices get high enough, people stop buying; it’s inevitable that people stop buying when monetary policy is not expanding: right now it’s tightening.
Interest rates are up, and the Federal Reserve is decreasing its balance sheet. In fact, if you look at broad measures of money supply, the money supply is decreasing — when adjusted for inflation.
Perhaps people feel like the economy is not doing “good” because it isn’t doing good.
It’s true that we haven’t seen damage in the job market…yet. But I’m not committed to the claim that everything is wrong in the economy right now, so bringing up the job market as a counter-argument is beside the point.
To get a better picture of what I’m talking about, look at the consumer confidence numbers below.
Are consumers just delusionally pessimistic? No. We are seeing record lows in consumer confidence because sentiment is matching reality; the reality is that prices are sky-high over the last couple of years. It’s not that people would rather lose their jobs than see their paychecks not go as far, but that doesn’t mean the latter is painless or very tolerable. This is also true even if we never get an official recession, as declared by NBER.
This is why the term “soft landing” is confusing and ambiguous. What does “soft landing” mean in economic/financial terms? Does it mean avoiding a technical recession? Does it mean a lite recession? Does it mean no recession in any sense? Does it mean no pain whatsoever? Then there’s the issue of whether some of these answers can be combined. For example, it seems possible to have an economic downturn without going into an NBER-announced recession.
What’s clear right now is that there’s economic pain, and there’s a lot of economic pain. In other words, we don’t have to know what will happen in the future with the job market and GDP (and NBER, etc) in order to know the current facts. Of course, those potential-future factors could make current factors worse. What does seem plausible, regardless, is that financial conditions will continue to tighten. When does it end? Nobody knows for sure. I would be willing to bet that the Fed will start cutting rates by the end of the year or next year.
