For a while, good news was seen as bad news in the economy, as it was feared that it would fuel inflation and lead to a more aggressive response from the Federal Reserve. However, the narrative is changing as economists view positive reports as signs of resilience in the American economy. Inflation is starting to moderate, economic growth remains positive, and the labor market is performing well. This is seen as evidence that the economy can withstand changing conditions and higher interest rates without causing widespread job losses. While a soft landing for the economy is not guaranteed, recent data suggests a gradual cooling down of inflation without negative consequences.
The stock market also reflects this sentiment, with stocks climbing in response to strong economic data that shows consumers continuing to spend while wages and price increases moderate. Federal Reserve Chair, Jerome H. Powell, acknowledges the resilience of the economy but emphasizes the need to monitor inflation. Economists and investors are no longer rooting for bad news, but rather for normalization and a return to pre-pandemic economic conditions.
As the economy reopens and demand outstrips supply, there is a desire for a balance to be achieved. Economists are happy to see continued hiring, consumer spending, and strong global travel, as resilience is not necessarily seen as inflationary. However, sustained rapid wage growth and excessive consumer demand could make it harder to control inflation. The goal is to achieve a soft landing for the economy, avoiding a crash or an over-heating that would necessitate aggressive monetary policy responses.
There is optimism among economists that the United States can achieve a soft landing, allowing the Federal Reserve to lower inflation without raising unemployment. However, this requires growth to remain below its typical rate and wage growth to slow. The supply side of the economy has also improved, with supply chains returning to normal, increased business investment, and a growing labor force.
Increased supply of workers and goods and services is beneficial as it allows the economy to come back into balance without excessive intervention from the Federal Reserve. With more workers available, companies can continue hiring without raising wages, and increased availability of goods can lead to more sales without price increases. This ultimately contributes to faster economic growth without inflation.