New York: The soft landing that once looked nearly impossible for the Federal Reserve to pull off is still on track. That’s the message from Jan Hatzius, the chief economist of Goldman Sachs.
“Certainly, it doesn’t look like the economy is anywhere close to a recession,” Hatzius told CNN.
Even though he concedes inflation has come in hotter-than-expected so far this year, the Goldman economist is sticking by his prescient call for a soft landing.
“If I look at the news flow overall over the last year, it’s still very, very positive,” Hatzius said. “Inflation has come down very substantially over that period. And more importantly, it’s come down without significant weakness in activity. We haven’t seen a recession. We haven’t been close to a recession.”
To fight inflation, the Federal Reserve spiked interest rates in 2022 and 2023 at the fastest pace since the 1980s under legendary Fed chief Paul Volcker.
Many feared that war on inflation would cause unemployment to surge and short-circuit the economic recovery from Covid-19. At one point in the fall of 2022, a model by Bloomberg projected a 100% risk of a US recession over the following 12 months.
Now, many economists are in the soft landing camp as consumer spending and the jobs market have proven to be much more resilient than anticipated.
Hatzius told CNN he’s “pretty confident” there won’t be a US recession over the next 12 months, placing just a 15% risk of a downturn. That’s more or less the average recession risk in any given year.
That upbeat forecast should be a relief to those in the White House trying to sell voters on President Joe Biden’s economic message. A recession could doom that effort.
One risk that is casting a shadow over the economy is empty office buildings in the $20 trillion commercial real estate market — a problem caused in part by Covid and the rise of remote work.
