What if the US economy avoids the damage? The thunderous post-Covid recovery has led to inflation that's hard to control: supply chains, disrupted by several shutdowns linked to repeated global lockdowns, have struggled to keep pace. Prices soared. The Fed was forced to intervene by raising interest rates.

US inflation since pre-covid (source: Forex Factory)

Central bank measures began to have an impact on the economy from mid-2022. Inflation slowed but remained strong for almost two years. The time has now come for the Fed to cut rates. It began doing so three weeks ago, with an initial cut of 50 basis points.

Evolution of Fed key rates. Note the recent 50 basis point cut (source: Forex Factory)

So, here we are. The idea now for economists is to predict how the US economy will perform (and whether growth will hold up) with the Fed's monetary policy timetable. Were rates cut too late? Is the pace of decline appropriate to avoid an economic crash?

In any case, the latest economic statistics show that the economy is holding up well. Last Friday, employment statistics were better than expected: non-agricultural job creation reached 254,000 over one month, whereas forecasters were expecting 147,000. The unemployment rate came in at 4.1%, compared with a forecast of 4.2%. The CPI data data for September also rose slightly more than expected.

Usually, after a rate hike cycle, Wall Street believes that the economy can either achieve a soft landing - if things go well and the economy slows down just a bit - or a hard landing, if things go awry. This time, it might even be better: no landing at all! Despite geopolitical tensions in the Middle East, China's woes and a still uncertain presidential election in early November, the US economy is holding up well. Hence the idea that the US economy may not land, and that it will remain high on the ground without going into recession.

Drawing by Amandine Victor for MarketScreener