Soft-landing, or no soft-landing, that is the question
|
Summary
- In September, we wrote a five-part series of reports that introduced a new toolkit to predict the probability of soft-landing, stagflation and recessionary episodes. The toolkit also predicts the probability of a monetary policy pivot occurring in the next two quarters. In this report, we update our framework with Q4 data.
- In the fourth quarter, the soft-landing probability increased from 42% to 44%. Meanwhile, the recession probability declined to 26% from 28%, and the stagflation probability remained constant at 27%.
- Though the growth scenario probabilities were little changed from last quarter, uncertainty surrounding economic policy may create volatility for the probabilities moving forward.
Watching and waiting
In September, we wrote a five-part series of reports that introduced a new toolkit to predict the probability of soft-landing, stagflation and recessionary episodes. The series details our methodology, but on a basic level, our framework effectively predicted periods of soft-landing, stagflation and recession using a threshold of 33% in the post-1950 era. It also accurately predicted episodes of policy pivots in the post-1990 era using a threshold of 35%. In this report, we update our framework with Q4 data to predict the probabilities of the three scenarios occurring during the next four quarters. We also predict the probability of a monetary policy pivot occurring in the next two quarters.
In the fourth quarter, the soft-landing probability increased from 42% to 44%. Meanwhile, the recession probability declined to 26% from 28%, and the stagflation probability remained constant at 27%. The soft-landing probability is the highest, which indicates that the chances of a soft-landing (trend-like growth) are higher during the next four quarters. However, elevated probabilities for all three scenarios should caution analysts to consider more than one scenario occurring.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.