More and more investors believe that the US economy is moving towards a “no landing” situation, that is, the inflation rate falls short of the Federal Reserve's 2% target, yet the US economy is still growing.

In a survey of global fund managers released by Bank of America on Tuesday, 36% of respondents said they think the most likely outcome for the global economy in the next 12 months is “no landing.” This figure is significantly higher than 23% a month ago, and is also the highest level since June 2023 (the earliest date on the Bank of America chart).

Meanwhile, 54% of respondents believe the most likely outcome is a soft landing, where economic growth slows but does not reach a recession, while inflation returns to the historical average.

This result indicates a shift in discussions on Wall Street. Currently, only 7% of respondents believe that a hard landing is the basic situation, that is, restrictive policies have forced the economy into recession. Last year, much of the debate on Wall Street was about whether the economy would have a hard landing or a soft landing.

The debate has now moved on to whether recent better-than-expected economic data will hinder further progress in inflation.

Jefferies American economist Tom Simons wrote in an April 12 report: “Without some kind of catalyst, the recession won't hit the US economy; we just can't see anything stopping consumer spending. As demand remains stable, it's hard to see how inflation will continue to slow, so it's also hard to see how the Federal Reserve will cut interest rates.”

The US retail sales data for March released on Monday supports this view. After excluding highly volatile categories such as automobiles, construction materials, and gas stations, the control group's retail sales increased 1.1% month-on-month. This indicator directly affects GDP. Combined with an upward revision of the February data, economists raised their economic growth forecasts for the first quarter.

Goldman Sachs currently believes that the quarterly growth rate of the US economy will reach 3.1%, higher than the 2.5% previously forecast. Meanwhile, the Atlanta Federal Reserve's GDP Now tool shows that the economic growth rate for the first quarter was 2.8%, higher than the 2.4% forecast previously.

Meanwhile, inflation expectations are also rising after the consumer price index was higher than expected several times in the first three months of this year. This has prompted more and more economists to believe that the Federal Reserve may not cut interest rates this year, leading to a “no landing” in 2024.

Nationwide's chief economist Kathy Bostjancic wrote in a Monday report: “Failure to moderately cool consumer spending and inflation will weaken the confidence of Federal Reserve officials that inflation is moving towards a sustainable return to 2%. (Recent data) It may delay the Federal Reserve's earliest interest rate cut until September, or even until next year.”

Mike Wilson, chief investment officer at Morgan Stanley, said that in recent weeks, the market has been digesting signs of “no landing.”

Wilson cites the recent spike in 10-year US Treasury yields and declines in interest-sensitive sectors such as the small-cap Russell 2000 Index. Wilson pointed out that this situation will not have a negative impact on all sectors of the stock market; on the contrary, it may create a healthier background for profit growth.

Wilson wrote, “Since interest rates now pose a greater risk to valuations, we prefer large-cap stocks that are undervalued and have a better growth mechanism than expected, such as large-cap energy.”

edit/ruby