by Calculated Risk on 9/16/2024 01:06:00 PM

Back in June, I wrote: The Art of the Soft Landing

A few excerpts and an updated graph ...

The "Art of the Soft Landing" requires that the Fed reduce rates quick enough to keep economic growth positive, and slow enough not to reignite inflation.  My view is a soft landing is achieved if growth stays positive, inflation returns to target, and the yield curve flattens or reverts to normal (long yields higher than short yields).

The good news is growth has stayed positive and inflation has moved closer to the 2% target.  However, the yield curve is still inverted, and we are not out of the woods yet.

Here is an updated graph of 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity from FRED since 1976. 

The yield curve is no longer inverted.  The next 6 months or so will tell the tale if the Fed reduced rates quick enough to accomplish a soft landing.  That probably means the Fed Funds rate will need to be down to around 4% or so.

Click here for interactive graph at FRED.