Soft Landing In Sight?

I was pulled away by jury duty this week, so postings have been light. Still, a couple of points to note. First, I am very, very glad that I did not go all recessionista on the back of that rise in initial unemployment claims at the end of last year. That indicator has turned around, and turned around hard:

So once again we are back to the story that if you are looking for signs of recession in the initial claims data, you are looking in the wrong place. Likewise for consumer spending. Retail sales perked up in March while previous months were revised higher:

Looks like the real story is not about impending recession, but a less-worrisome deceleration. Industrial production is a bit off:

Manufacturing may again be the odd man out in an otherwise solid economy. This has the feeling of 2015-16, though less severe.

The data has a soft-landing feeling, which I discussed in my Bloomberg Opinion article this week:

The Federal Reserve seems to be achieving the fabled soft landing. With growth likely to transition down toward the longer-term trend in 2019, expect monetary policy to remain on hold for the foreseeable future. If the Fed were to move, the odds still favor an interest rate cut over an increase. We are likely at the peak of this rate hiking cycle.

With regards to the policy outlook, the Fed appears to be setting the stage to pursue a dovish policy stance going forward. I discussed that in the above article, and Bloomberg’s Rich Miller and Craig Torres explore this theme as well:

Federal Reserve Chairman Jerome Powell and his colleagues have made an important shift in their strategy for dealing with inflation in a prelude to what could be a more radical change next year.

The central bank has backed off the interest-rate hikes it had been delivering to avoid a potentially dangerous rise in inflation that economic theory says could result from the hot jobs market. Instead, Powell & Co. have put policy on hold until sub-par inflation rises convincingly.

I have been puzzling on this issue this week. I think the conclusion that the Fed wants to see more conclusive evidence of inflation before hiking is correct. That’s the way the Fed is moving. That said, I fear they may be inadvertently setting a trap for market participants. It’s that nasty time-consistency policy problem bouncing around in the back of my head. I am not confident that what they will ultimately think is convincing evidence of inflation’s return will actually be convincing evidence of inflation’s return. Teaser alert: I am working on a longer note on this issue, which should be complete early next week.