Is it possible to be too optimistic? In the case of Federal Reserve Governor Christopher J. Waller, he maintains the fabled soft landing is still possible. Quotes from speeches, testimony, or interviews from members of the Fed hardly age well, as is the case here, when he gave a talk at an economic summit in Idaho a few days ago:
We must be focused on reducing inflation because, despite a lot of talk about recession lately, the evidence from the labor market indicates the economy is on track, while inflation continues to be far too high.
While transitory inflation and average inflation targeting have since fallen by the wayside, we should always remember that after all these years of hearing about “stubbornly low inflation,” the Fed finally got its wish.
He called the June CPI inflation data a “major league disappointment.” Explaining:
On a twelve-month basis, total inflation stood at 9.1 percent, the highest in 40 years… No matter how you look at the data, inflation is far too high and my job is to move it down toward our 2 percent target.
Consider: They wanted higher prices. They got higher prices. Now they want prices to go down again. If this is the economic track they wanted, it’s concerning to envision how it will unfold.
He acknowledges Atlanta Fed’s data indicating a recession just around the corner, or that we may already be in one, stating:
Some argue that a recession has already started.
But clearly not all economic data is created equal, as he looks past GDP, saying:
…I don’t see how that squares with the job creation data, the low unemployment rate, and overall strong labor market…
Maybe it will matter one day… Yet other metrics aren’t as favorable. The 10-year minus 2-year yield curve turned negative for the second time this year (currently at -0.20), and the 10-year minus 3-month yield curve faced a sharp decline in the last few weeks (currently at 0.56). Price inflation is still at a multi-decade high, while the stock market shows bursts of strength here and there. But without the Fed expanding the balance sheet, a long position continues to sound like a bad idea.
And yet, the soft landing still shines as a glimmer in our central planner’s eyes:
At our June meeting, the latest SEP shows that there is some expectation among participants for what is often referred to as a soft landing.
He claims:
…a soft landing is very plausible.
With an optimism that can’t be beat, he winds down his talk:
So, while some data measures suggest the chances of recession have increased, I believe it can be avoided.
Either the Captain of the Titanic saw the iceberg and thought the ship would weather the crash, or he just didn’t see it coming. Can anything more be said about the Fed’s Board of Governors?
