We're more than two months into the year and no closer to understanding what the heck is going on in the economy than we were at any point in 2022. That seemingly imminent recession hasn't come. Commentators and economists are so befuddled they're fixating on nonsensical analogies like the buzzy "no landing" scenario (more on that in a minute).
And once again, the pressure to keep the metaphorical jumbo jet from crashing into metaphorical flames is on the shoulders of the metaphorical pilot, Fed Chairman Jay Powell.
See here: Tomorrow and Wednesday, Powell will testify before Congress, opening himself up to questions, criticism and, as these things go, a good amount of grandstanding from lawmakers who can't resist a moment in the spotlight.
Powell is expected to reiterate the central bank's commitment to bringing inflation down to its 2% target, from 6.4% currently. To do that, Jay-Money and his crew at the Fed will have to keep ratcheting up interest rates — something Democrats and Republicans can agree is rather unpleasant, as it depresses the labor and housing markets, makes it harder for businesses to expand, and weighs on stocks.
Given all that, it's safe to assume the banter could get a bit spicy, even for the historically unflappable Silver Fox of the Fed.
What Congress (and virtually everyone else watching the testimony) wants to know is when, oh when, can we expect interest rates to peak. Even though the Fed predicted in its closely watched "dot plot" projection that it would happen later this year, the bank has also signaled that high inflation may push the date back.
In the meantime, here's what we do know: The economy is doing some weird stuff.
We have the strongest labor market in more than half a century (yay!).
But economists worry that rising wages, especially in the service industry, will add to the global mess that's pushed inflation higher (the war in Ukraine, China's sputtering economy, aggressive pricing by corporations eager to lock in profits, etc.)
So far, Americans' willingness to spend has kept our consumer-driven economy humming through all of it. But they're starting to pull back.
Let's go back to torturing aviation metaphors, shall we?
The Fed is aiming for a "soft landing" — raising interest rates just enough to tackle inflation without tanking the labor market.
(As an aside, the metaphor actually comes from the Cold War, when some spacecrafts were successfully engineered to make soft landings. But these days most people think of it as landing a plane. [An aside to this aside: It's a flawed metaphor because landing a plane is easy. Like, almost anyone could do it. The Fed's mission is more like landing a $20 trillion plane with no landing gear, a leaky fuel tank and no onboard tech. On the water. In a hurricane.])
A "hard landing" is a crash — right into a recession we go.
Larry Summers, an economist and former Treasury Secretary, is betting on that outcome.
"The process of bringing down inflation will bring on a recession at some stage, as it almost always has in the past," he told CNN's Poppy Harlow on Monday. "The economy could hit an air pocket in a few months."
But others have lately fixated on a "no landing" scenario in which the economy just settles into a cruise, of sorts, of high growth and high prices.
"Analogies eventually break down, especially this one," wrote Jeffrey Roach, Chief Economist for LPL Financial. He offered an update on the overused aviation metaphor, comparing the economy to a runner that is beginning to hit their stride in a race.
Bottom line
Analogies aside, the economy is currently far from recession territory. And a deluge of data (sorry, metaphors are actually hard to avoid) this week is expected to underscore that reality.
Wall Street will have plenty to digest in addition to Powell's testimony.
- On Wednesday, the government releases the monthly Job Openings and Labor Turnover Survey, or JOLTS. Also out Wednesday: The ADP's monthly read on private payrolls, and the Fed's Beige Book.
- On Thursday, Challenger, Gray & Christmas are set to release their job cuts numbers for February.
- And on Friday, the main event: The Labor Department's monthly employment report.
As my colleague Nicole Goodkind writes, its more or less Hell Week for Wall Street, and that could make for a volatile time for stocks.
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