U.S. inflation pressures are easing and the economy should manage a soft landing, the Federal Reserve Bank of Dallas said on Wednesday.
"The latest data reinforce the impression of an economy in which growth remains moderate and inflationary pressures are likely to continue to subside," it said in a national economic review written by senior Dallas Fed staff economist Tao Wu.
If I told you these quotes were from this past week, you’d probably be inclined to believe me. It seems that financial media loves to talk about how the Fed has managed to bring the U.S. economy to a “soft landing”, and that growth is moderating and inflation is subsiding. While we are showing signs of a soft landing, it doesn’t mean we will hold the landing.
The quotes above were from a Reuters article published on September 26, 2007. Seems a little scary realizing what happened in the days, weeks, and months after, where the economy most definitely did not have a soft landing.
I am definitely not saying we are in for another 2008 disaster, but I am also saying don’t think we are in the clear just yet. That being said, we can learn a couple valuable lessons here:
1. The Next Year is Incredibly Difficult to Predict
Nobody knows what is going to happen in the next year. In the worlds of Finance and Economics the environment can change on a dime, with one event causing the house of cards to fall in. I am not saying there is a “Lehman moment” coming, but the reason moments like Lehman Brothers failing are so memorable is nobody could have seen them coming. It’s also why it is futile to try to invest based on the economy, because it will (most likely) never work.
2. (Almost) Nothing We See in Finance is New
Last week I mentioned Morgan Housel’s new book “Same as Ever”, which again I highly recommend. A lot of what he discussed in that book is that things that happen in finance and in our lives are not at all new or unique experiences. At one point in the book he does the same thing I did here, quoting an article from decades ago and applying it to a time well after it was written. Some things just don’t change, and finance is no exception.
It is important to remember that just because the economy didn’t have a soft landing the last time everyone thought it would, doesn’t mean it won’t this time. I’ve been increasingly worried with the market sentiment that a soft landing is near certain. Usually when something is consensus in finance it does not occur as planned. Maybe I am too much of a skeptic, but is that really the worst thing to be in the world of finance? Who knows.