Dr. Vince Malanga, president of LaSalle Economics, notes the potential economic scenario where economic growth stabilizes between 1.5% and 2% while inflation remains persistently between 2.5% and 3%. He says that raises the question of whether this situation constitutes a hard or soft landing, or possibly stagflation, with the interpretation likely influenced by political affiliations.
Fed Chair Jerome Powell’s recent testimony suggests a commitment to maintaining a steady policy course, with hints of potential rate cuts in the future. However, Malanga argues the Fed might be missing an opportunity for a more favorable outcome. The window for declining inflation could close soon, he believes, while risks from the commercial property sector are rising. Delayed action may exacerbate these conditions and invite criticism from both ends of the political spectrum, he predicts.
While there are factors mitigating inflation, such as the productivity boomlet and China’s deflationary impact, Malanga adds that recent data shows a rise in core PCE deflator and other inflation indicators. The fiscal stimulus is significant, he reasons, and expected to continue, primarily driven by government spending initiatives, which could further complicate the economic picture.
Private sector activity showed signs of decline in January, with job growth slowing and wage growth decelerating in February. While some indicators, like ISM new orders, suggest strong future production, Malanga points out that weaknesses in the commercial property market and overall economic uncertainty pose risks.
Malanga questions whether the Federal Reserve is willing to take the risk of maintaining current policy settings in an election year. Delaying policy adjustments could invite criticism from both sides of the political spectrum, he says, adding that initiating rate cuts early might be the preferred course of action to navigate the complex economic landscape. Sign up (free) for more news and market insights from Pro Farmer.
