Economic sentiment can shift on a dime. This year, terms like ‘soft landing (slowing growth, slowing inflation)’ and ‘hard landing (recession, slower inflation)’ have gotten the most play. Earlier in the year, a so-called ‘no-landing’ scenario (continued economic growth, high inflation) crept into the vocabulary. Occasionally, we hear ‘crash landing (steep recession, low inflation).’

The slowdown in the rate of inflation last month was aided by food and energy prices. The Consumer Price Index rose 0.1% in March versus February amid a 3.5% decline in energy prices and no change in food prices (U.S. Bureau of Labor Statistics data). Grocery stores actually fell 0.3%, while food at restaurants jumped 0.6%.

Inflation was uppermost on the minds of investors, Fed officials, and policymakers until the failure of Silicon Valley Bank (SVB) forced price stability to play second fiddle to banking stability. The banking crisis has eased amid tentative signs that actions taken by the U.S. Treasury, the FDIC, and the Federal Reserve are having their intended effect: preventing contagion.

The Federal Reserve raised its key lending rate, the fed funds rate, by 25 basis points (bp, 1 bp = 0.01%) to a range of 4.75 – 5.00%, as most observers had expected. A few saw no change. Before the failure of Silicon Valley Bank (SVB), a consensus had been building for 50 bp.

The economic distortions tied to that pandemic and the government’s massive response to prop up the economy have been far-reaching. Before continuing, let’s look at some facts and definitions. Consumer spending accounts for 70% of the total economy, according to the U.S. Bureau of Economic Analysis (BEA).

‘No landing’ is a recently coined term that implies the economy won’t slow. The term is now being used amid an unexpected pickup in economic activity.

The Fed’s road to 2% annual inflation took a curious turn last week, disappointing some investors that had been expecting continued progress on inflation. The U.S. Bureau of Labor Statistics reported that the January Consumer Price Index rose 0.5% in January, while the core rate, which excludes food and energy, rose 0.4%.

Rising interest rates are the result of the Federal Reserve’s campaign to snuff out inflation. The pain of rising rates has been felt in the financial sector. It has also been felt in housing. Housing sales tumbled since the beginning of 2022, as the jump in mortgage rates forced many buyers to the sidelines. Existing home sales fell a whopping 38% last year, according to the National Association of Realtors.

Last year, the Federal Reserve and Fed Chief Powell’s bite were probably worse than the bark. Rhetoric and commentary were forceful and were matched by a nearly unprecedented series of rate hikes, including four-straight 75 basis point (bp, 1 bp = 0.01%) increases.