Neil Dutta and Conor Sen on the Chances of a US Soft Landing

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:16)

And I'm Tracy Alloway.

Joe Weisenthal (0:17)

Tracy, I have to say that at this point, maybe in like my career or this stage in the economy, I can't remember a time in which I feel like there are so many like legitimate divergent views on the direction of the economy. Like some people will say like, inflation is gonna stay high through all of 2023, and the economy isn't gonna slow down. Some people are like, okay, we're headed for a recession because the feds hiked rates and housing is plunging. And others say, oh, this is get stagflation because there's entrenched. Like there are many very legitimate views in my perception about where things could head from here.

Tracy Alloway (0:57)

It does feel very bifurcated at the moment, like two very extreme paths, like either you get a massive global recession and ensuing deflation, or you have this period of 1970s style hyperinflation, or you have something even worse, which would be stagflation.

And people used to talk about the prospect of the soft landing. That kind of went away for a while, this idea that the Fed could raise rates and quash inflation without necessarily engineering a huge knock to economic growth. It kind of went away for a while, I think when the inflation readings kept coming in higher than expected. But, we're recording this on January 6th, and we just had a really good payrolls report from the perspective of the soft landing thesis. We had, I think, unemployment dropping, but wages easing a little bit, so we don't have to worry about that wage price spiral that central banks were all scared about. And so now we have a lot of talk again about the possibility of the soft landing.

Joe Weisenthal (2:02)

Yeah, I mean, the way I've been thinking about it is that until unemployment actually really starts jumping, and it hasn't jumped at all because we're back down to 3.5% basically. Like the soft-

Tracy Alloway (2:14)

The historic lows.

Joe Weisenthal (2:14)

Yeah, historic lows. I think I saw a tweet that actually, if you go out to like the sixth decimal point, it really is like the lowest in like 50 something years now. I don't know. I didn't fact check it, but-

Tracy Alloway (2:24)

You should do a post on it if that's true.

Joe Weisenthal (2:28)

This is why we need like each other like in the office so that someone's like, don't just like, don't just look at the tweet, post it.

But in all seriousness, you know, like until, my view is like until unemployment like really starts to rise, like until we like really have that, like the soft landing scenario like can't be disproven, right? Because there's always the chance that inflation comes down and employment doesn't go up. Like it's a hope, like, you know, knock on wood, we all want it to happen. But you know, until like unemployment really starts falling apart, that can't be disproven.

And then there's the additional layer, which is let's say inflation were to come down and get closer to the Fed's goal, but the unemployment rate refuses to budge. Does the Fed believe it? Or does the Fed say, no, like we have to keep hammering, we have to keep hiking rates in order to get unemployment up so that we can be confident that this decline and inflation is sustained.

Tracy Alloway (3:19)

I do have to say, like part of me still feels a little weird when we're talking about the Fed explicitly trying to push up unemployment and also like the idea that, oh, it's good that wages aren't going up in a period of high inflation. We're all kind of poorer, but on the other hand, we don't have unanchored inflation expectations. But setting that aside, the thing I'm getting from this conversation is that we have a lot to talk about.

Joe Weisenthal (3:42)

That's right. And we could keep talking because we have plenty of thoughts, but why don't we talk to two guests who we've both had on before that also have plenty of thoughts, some of our favorite sort of like big picture e-comm thinkers, a great conversation, hopefully a great conversation to start 2023

Tracy Alloway (4:00)

Destined to be a great conversation, I'm sure.

Joe Weisenthal (4:03)

Yes. We're going to be speaking with Conor Sen, a columnist here at Bloomberg Opinion, as well as Neil Dutta, head of economics at Renaissance Macro. So Conor and Neil, thank you so much for coming back on Odd Lots.

Conor Sen (4:15)

Great to be here.