With very strong job growth, a higher labor force participation rate, and a decline in the unemployment rate to the lowest level since 1969, it is beginning to look more like a “no landing” scenario.
Under the no landing scenario the economy does not slow down, and upside risks to inflation are coming back after the initial decline in inflation driven by supply chain improvements. And under the no landing scenario the Fed will need to raise rates more and keep rates higher for longer to get inflation all the way back to the Fed’s 2% target.
The no landing scenario is negative for markets because higher rates for longer increases the downside risks for equities and credit, particularly for tech and highly levered companies that will see higher interest payments for longer. In short, the no landing scenario brings back the volatile market action we saw in 2022 because it reintroduces uncertainty about inflation and about the Fed.
Our employment outlook presentation is available here.
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