Attack the Week (ATW)
December 11, 2023
When we recently travelled from Oaxaca to Puerto Escondido on Mexico’s Pacific coast, we had a few travel options to consider. Either fly back to Mexico City as a stop-over and then out again to our destination, take a taxi that would take us over several hills to the coastal sights in around 7 or 8 hours or then take a small passenger propeller plane to fly us to our next stop in less than half an hour. We chose the quick flyover option with a small local airline. It was an early 7 am flight, and I was sat behind the pilot. It was a smooth flight, and we landed safely, but I couldn’t help asking myself what would have happened had the pilot suddenly passed out. I had my fair share of playing around with flight simulators in my time, but I’m pretty sure none of my virtual experiences would have helped me land a plane properly. Let’s face it: Any untrained individual would likely crash it to the ground.
Thinking it through, the immediate consequence of an out-of-action pilot wouldn’t have changed much. The plane would continue flying on auto-pilot and could probably do so for quite a while as long as enough fuel was in the tank.
This year’s economic soft landing vs hard landing speculations have mostly been focussing on the piloting Fed’s ability to manoeuvre a soft landing, while in fact, the economic momentum “fuel” was the most important factor that made the question of a landing obsolete.
Nominal growth is still growing handsomely, with the latest estimate still around 4.5% YoY. Even without a skilful pilot, this economy is still in cruising mode. Dynamics will likely change in 2024 when growth might slow somewhat as fiscal impulses wane, bringing the Fed and its reaction function into sharper focus. Can Jay land it? This week’s FOMC will be fundamentally important as it sets the conditions and sensitivities for their current holding pattern.
Let’s look at it in more detail and what else this week might bring.