Soft landing in prospect for US

The US Federal Reserve has done enough to achieve a soft landing by returning inflation to target without a collapse in economic activity, according to analysis from research and ratings house, Morningstar.

Morningstar market strategist, Lochlan Halloway used his weekly wrap-up to note that inflation had fallen more than four per centage points from peak in 2022, but gross domestic product (GDP) growth had accelerated thanks to a loosening in supply constraints.

“We forecast a mild deceleration in GDP growth through mid-2025, bringing inflation below the Federal Reserve’s 2% target,” he said.

However, he noted that, while achievable, a soft landing is not assured in circumstances where the economy needed to tread a narrow path, with growth slowing sufficiently to prevent a resurgence in inflation but “avoiding a nosedive into a major contraction.

The analysis pointed to the possibility of lower interest rates if US inflation returned to target and forecast more than three per centage point cuts by the end of 2026.

It said that the takeaway for investors was that the stocks likely to benefit from lower interest rates would be infrastructure and real estate.

“Generally, companies in these sectors are more heavily geared, and falling rates should reduce debt servicing costs,” Halloway’s analysis said.