[Baltimore Sun] US economy continues to power toward a soft landing
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The U.S. economy has been on a hot streak lately, with a labor market showing signs of strength under elevated interest rates, growth that continued to beat expectations, and consumer spending holding up despite frustrations with higher prices while inflation keeps retreating toward normal levels.
On top of economic data continuing to show signs of resilience through frequently predicted recessions, the Federal Reserve has started to shift its policy stance to getting interest rates on a more neutral path as priorities shift from taming inflation, which is now mostly under control, to bolstering the economy.
Hiring had slowed in recent months after setting records throughout the post-pandemic recovery despite high interest rates and increased prices caused by inflation. It remained strong by historical standards but was a closely watched piece of the economy showing potential signs of weakness.
But Friday’s jobs report, which showed a labor market that had been a top concern for investors and economists over the last few months, was still solid, as businesses blew past expectations, adding 254,000 jobs in September and bringing the unemployment rate down to 4.1%.
People in their prime working years are also employed at a strong clip that hasn’t been seen since the early 2000s. Average hourly earnings are also on the upswing, giving consumers more wiggle room to make purchases and pay their bills.
Fed Chair Jerome Powell has vowed that the central bank is doing everything it can to help support the economy, noting that its aggressive half-percentage-point cut was a commitment to avoid falling behind on lowering rates that could drag the economy down.
Some economists see an economy in good balance, giving the Fed more wiggle room to be cautious with its rate cuts over the next year while keeping inflation in check. There is a growing sense of optimism that Fed officials have achieved the notoriously difficult soft landing by bringing the pace of price increases down without causing a recession.
Lowering interest rates makes it cheaper for consumers and businesses to borrow money, which helps power consumer spending that makes up some 70% of U.S. economic activity. The Fed is trying to find the right balance of bringing rates back down from historic highs to keep the economy on track while moving at the right pace to get inflation down to 2% on an annual basis.
Inflation has also continued to decline this year, which has laid the path for the Fed to move forward with its interest rate cuts. The central bank’s preferred measure of inflation fell to 2.2% in August, the most recent reading, barely above its target of 2%.
The consumer price index, which makes more headlines and includes goods more noticeable to consumers, has also fallen to under 3% this year, with signs that it should continue to drop back to the 2% target. Another CPI release will come out on Thursday, providing more data to back up the Fed’s next rate cut decision in November.
“A slowing inflation rate shows an economy doing well. While humans worry, especially about forces they cannot control, like the macroeconomy, I believe the U.S. can maintain steady growth in the months ahead,” said Jay Zagorsky, clinical associate professor of markets, public policy and law at Boston University’s Questrom School of Business.
While the economy has continued to show signs of strength, there are still hurdles to navigate moving forward. Consumers have kept spending but have been more selective in recent months, and indexes that track confidence in the economy have also fallen amid concerns about the job market. Even though the data backs up a healthy labor market and overall economy, consumer attitudes don’t always align with economic reports and could pose a danger to activity and growth.
There are some concerns about geopolitical events causing shocks that could upset the balance of inflation as well. Fears over the spread of war in the Middle East have prompted concern that oil prices could jump if Iran’s oil production facilities are hit, though other exporters could fill that void.
“There are always unknowns and stumbling blocks to economic progress in the short term,” Zagorsky said. “While every decade has seen its share of problems, I am optimistic the U.S. economy will continue its remarkable resilience it has shown since the end of World War II. With every short-term problem like AI, migration, wars, and hurricanes, there are almost always silver linings that allow the economy to bounce back even stronger.”
Content from The National Desk is provided by Sinclair, the parent company of FOX45 News.
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