Soft Landings vs. Hard Landings

The following chart shows the number of unemployed as we were heading towards the dotcom bust.


Click to enlarge.

Note the peaceful and gradual descent. The Fed was unable to engineer a soft landing but some might argue that it was at least a valiant effort. What a beautiful approach! Too bad the landing gear got caught up in the tech bog.

Let's once again turn our attention to the glide path we are currently on.


Click to enlarge.

Note that the volatility is lower and the correlation is higher than the data in the previous chart. Don't confuse consistency with peaceful and gradual though. We're picking up speed as we approach the ground. That's the kind of thing that generally instills terror into the hearts and minds of passengers.

They say that any landing you can walk away from is a good landing. Unfortunately, I strongly suspect that the only way this landing will be considered a success is if we manage to recover the flight recorder intact. Let's hope I'm wrong.

Why is this happening? The Fed is doing everything it can to generate 2% inflation and the economy is doing everything it can to resist it. Even if the Fed is ultimately successful, the ride will get a whole lot choppier at some point. This smooth parabola is absolutely guaranteed to fail. The longer the failure is put off, the more spectacular the failure will be.

So, on that note, I just have one thing to say to those who truly think all our problems are behind us. Got parachute?



Source Data:
St. Louis Fed: Unemployed