Hey ,

Did you know that out of 12 past rate hike cycles, the U.S. Federal Reserve managed a "soft landing" only once?

What is a “soft landing”?

A soft landing occurs when the Fed successfully raises interest rates to control inflation and then lowers them without triggering a recession.

The chart below illustrates that each time the Fed began cutting interest rates, a recession (highlighted by the grey bars) typically followed. The only exception was in 1995 (circled in red).

In other words, the Fed has historically raised rates too much and cut them too late to avoid a recession.

Was there similar “soft landing” optimism before previous recessions?

Yes!

Before the Great Financial Crisis of 2007/2008 and the Dot-com crash of 1999, there were widespread predictions of a soft landing in the media. However, we know how those turned out.

Is the economic situation now similar to 1995?

Not exactly. Unlike in 1995, where the unemployment rate was declining, today, in 2024, unemployment is trending upwards.

Am I predicting a recession?

Not at all!

No one can predict the future with certainty. While the U.S. GDP remains strong, it’s risky to rely solely on the Fed’s ability to achieve a soft landing.

That's why I advocate for diversification—not just within the U.S. stock market but also across different asset classes, especially bonds.

As I’ve mentioned in previous emails, bonds have historically performed well when interest rates start to fall.

They have traditionally provided stability during economic downturns, helping to mitigate potential losses.

I hope these insights are helpful! If you would like to discuss this further, feel free to reach out.

Best regards,

Zest Chia

Executive Wealth Consultant | Associate Estate Planning Practitioner |

Licensed General Insurance Advisory

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