RE:RE:Unemployment spikes after first cut
garyreins wrote: TJ is it fair to say you're main concern now is recession or hard landing over persistent inflation into 2025 and beyond?
My definition of a soft landing is when unemployment increases moderately, say within 50 bps from its lows and gdp remains positive on both aggregate and on a per capita basis.
It's fair to say Canada does not pass the test except for maybe gdp which remains slightly positive which is due to the massive immigration we've had. I would call that artificial growth to prop up gdp numbers but I digress. Generally speaking, unemployment rises by about 3% during a recession or a hard landing and Canada is about halfway there. It can take up to a year, after all the revisions come in for Canada to officially declare we were in a recession. If I had to guess that will probably be next years story but it will be old news as the markets will already be pricing in a recovery.
After unemployment rises, inflations tends to fall but with a lag of about 6-12 months. When I start to see unemployment rise then I know inflation has been conquered. However, I must remind people that during the stagflation crisis of the 1970's, unemployment went higher but so did the 10 year yield and inflation. Specifically in the years 1974 and 1975 but it had a lot to do with the oil embargo that occurred on the US.
I think inflation will reach the 2% target probably sometime in 2025 with unemployment continuing to rise in the second half of the year. If I'm wrong about this then I expect inflation to remain elevated for the foreseeable future. The US and Canada needs to see more job losses to bring the labour market in better balance.
I believe a recession will be good for Cre's in the long run as it will force more people back to the office and remote workers could get the boot.