Soft landing, stagflation, or recession for the US economy? Wells Fargo shares view

The direction of the American economy has been hotly contested; experts and economists cannot agree on whether the nation is headed for a recession, stagflation, or a soft landing.

In an effort to more accurately forecast these economic outcomes, Wells Fargo unveiled a new toolbox that primarily targets the soft landing scenario.

The article highlights the flaws of conventional models that only account for GDP growth projections or recession probability.

Rather, the new framework from Wells Fargo proposes to categorise the economic picture into three different regimes: recession, stagflation, and soft landing.

Different policy positions are needed for each scenario, which provides a more sophisticated assessment of possible threats to the economic outlook.

The letter emphasises the drawbacks of depending only on predictions of recessions, particularly in light of the unpredictability of recent economic cycles.

For example, in 2023, a lot of private sector analysts projected a recession; nevertheless, the U.S. economy proved resilient, and by Q2 2024, that conclusion had been avoided.

The necessity for a more thorough approach to economic forecasting is highlighted by this resiliency as well as the monetary policy decisions made by the FOMC.

The goal of Wells Fargo's new toolbox is to give decision-makers a more precise evaluation of the risks connected to various economic scenarios.

The framework provides a more comprehensive framework for policy decisions by calculating the likelihood of a recession, stagflation, or soft landing. This is particularly useful when deciding when and how much to alter interest rates.

According to Wells Fargo, a gentle landing is still possible for the American economy as it continues to navigate uncharted territory. However, the way forward will need close observation of inflation, GDP growth, and other important economic indicators.

(Sources: investing.com, reuters.com)