Optimism about the economy has grown recently. This is an overdue shift in sentiment given the strengths of the U.S. economy that persisted all of last year when doomsayers called the recession prematurely. A so-called soft landing is arguably playing out.
Why Firms Are Struggling with the U.S. Economy’s Soft Landing
Waning pricing power, a tight labor market, and expensive capital all present challenges for business.
February 17, 2023
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Summary.
In the middle of 2022, the U.S. economy was overheated, and inflation was reaching new heights. Monetary policymakers responded by aggressively raising interest rates, increasing the risk of a policy-induced recession. To avoid one, the labor market, where much of the pressure was concentrated, had to ease without driving up the unemployment rate — the ultimate arbiter of recession. While this was deemed near-impossible to achieve, seven months later it is exactly what has happened. But while a soft landing may sound enticing, firms are facing a number of challenges, including waning pricing power, a tight labor market, and expensive capital. The typical recession playbook of retreating and cutting to fight another day is not suited for the challenges of today’s strong economy.