Market outlook

Will the US Fed manage to pull off a soft landing?

Soft-landing optimism (where economic growth slows but a recession is avoided) can deliver more near-term market gains but the risks of a sharper economic slowdown later in the year are elevated. Although declining inflation means central banks can start easing in the second half of the year, the lagged impact of previous rate rises is yet to be fully felt. The US Federal Reserve’s dilemma is that delaying rate cuts and easing too slowly may create the risk of a recession, while easing too quickly could trigger more inflation. The New Zealand economy has been under more pressure than Australia, in large part because the Reserve Bank of New Zealand (RNBZ) tightened monetary policy more aggressively. The positive signs are that business confidence has been rising and the RBNZ has signalled the hiking cycle is likely finished.