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A ‘soft landing’ is still on the table, economists say

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2 years ago

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Traders on the floor of the New York Stock Exchange during afternoon trading on Aug. 02, 2024.

Michael M. Santiago | Getty Images

Recession fears led to a sharp stock-market selloff in recent days, with the S&P 500 index posting a 3% loss Monday, its worst in almost two years.

Weaker-than-expected job data on Friday fueled concerns that the U.S. economy is on shaky footing, and that the Federal Reserve may have erred in its goal of achieving a so-called “soft landing.”

A soft landing would mean the Fed charted a path with its interest-rate policy that tamed inflation without triggering an economic downturn.

Federal data on Friday showed a sharp jump in the U.S. unemployment rate. Investors worried this signaled a “hard landing” was becoming more likely.

However, the odds of a recession starting within the next year are still relatively low, economists said.

In other words, a soft landing is still in the cards, they said.

Economic data still justifies a soft landing, says Apollo's Torsten Slok

“I think far and away the most likely scenario is a soft landing: The economy avoids an economic downturn,” said Mark Zandi, chief economist at Moody’s.

Likewise, Jay Bryson, chief economist at Wells Fargo Economics, said a soft landing remains his “base case” forecast.

But recession worries aren’t totally unfounded due to some signs of economic weakness, he said.

“I think the fears are real,” he said. “I wouldn’t discount them.”

Avoiding recession would also require the Fed to soon start cutting interest rates, Zandi and Bryson said.

If borrowing costs remain high, it increases the danger of a recession, they said.

Why are people freaking out?

The “big shock” on Friday — and a root cause of the ensuing stock-market rout — came from the monthly jobs report issued by the Bureau of Labor Statistics, Bryson said.

The unemployment rate rose to 4.3% in July, up from 4.1% in June and 3.5% a year earlier, it showed.

A 4.3% national jobless rate is low by historical standards, economists said.

But its steady increase in the past year triggered the so-called “Sahm rule.” If history is a guide, that would suggest the U.S. economy is already in a recession.

The Sahm rule is triggered when the three-month moving average of the U.S. unemployment rate is half a percentage point (or more) above its low over the prior 12 months.

That threshold was breached in July, when the Sahm rule recession indicator hit 0.53 points.

Goldman Sachs raised its recession forecast over the weekend to 25% from 15%. (Downturns occur every six to seven years, on average, putting the annual odds around 15%, economists said.)

Zandi estimates the chances of a recession starting over the next year at about 1 in 3, roughly double the historical norm. Bryson puts the probability at about 30% to 40%.

The Sahm rule may not be accurate this time

However, there’s good reason to think the Sahm rule isn’t an accurate recession indicator in the current economic cycle, Zandi said.

This is due to how the unemployment rate is calculated: The unemployment rate is a share of unemployed people as a percent of the labor force. So, changes in two variables — the number of unemployed and the size of the labor force — can move it up or down.

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The Sahm rule has historically been triggered by a weakening demand for workers. Businesses laid off employees, and the ranks of unemployed people swelled.

However, the unemployment rate’s rise over the past year is largely for “good reasons” — specifically, a big increase in labor supply, Bryson said.

More Americans entered the job market and looked for work. Those who are on the sidelines and looking for work are officially counted amid the ranks of “unemployed” in federal data, thereby boosting the unemployment rate.

The labor force grew by 420,000 people in July relative to June — a “pretty big” number, Bryson said.

Meanwhile, some federal data suggest businesses are holding on to workers:  The layoff rate was 0.9% in June, tied for the lowest on record dating to 2000, for example.

‘The flags are turning red’

That said, there have been worrying signs of broader cooling in the labor market, economists said.

For example, hiring has slowed below its pre-pandemic baseline, as have the share of workers quitting for new gigs. Claims for unemployment benefits have gradually increased. The unemployment rate is at its highest level since the fall of 2021.

“The labor market is in a perilous spot,” Nick Bunker, economic research director for North America at job site Indeed, wrote in a memo Friday.

“Yellow flags had started to pop up in the labor market data over the past few months, but now the flags are turning red,” he added.

Other positive signs

There are some positive indicators that counter the negatives and suggest the economy remains resilient, however.

For example, “real” consumer spending (i.e., spending after accounting for inflation) remains strong “across the board,” Zandi said.

That’s important since consumer spending accounts for about two-thirds of the U.S. economy. If consumers keep spending, the economy will “be just fine,” Zandi said.

I think far and away the most likely scenario is a soft landing: The economy avoids an economic downturn.

Mark Zandi

chief economist at Moody’s

Underlying fundamentals in the economy like the financial health of households are “still pretty good” in aggregate, Bryson said.

It’s also a near certainty the Fed will start cutting interest rates in September, taking some pressure off households, especially lower earners, economists said.

“This is not September 2008, by any stretch of the imagination, where it was ‘jump into a fox hole as fast as you can,'” Bryson said. “Nor is it March 2020 when the economy was shutting down.”

“But there are some signs the economy is starting to weaken here,” he added.

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Finance

Cross-Border Settlement Innovation and Real-Time Payment Architecture

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6 hours ago

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August 15, 2026

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The global banking system is undergoing a comprehensive modernization of cross-border payment infrastructure. Driven by real-time settlement networks, open banking APIs, and interoperable messaging standards, financial institutions and multinational corporations are eliminating multi-day delays and reducing transaction costs associated with legacy international wire transfers.

Transition to Real-Time Gross Settlement Networks
Historically, international business-to-business (B2B) payments relied on complex correspondent banking relationships involving intermediary fees and processing delays. In 2026, the widespread adoption of ISO 20022 messaging protocols alongside interconnected Real-Time Gross Settlement (RTGS) systems allows direct, end-to-end processing of cross-border transfers.

Commercial banks are providing corporate clients with continuous, 24/7 payment clearing capabilities. Real-time transaction confirmation and automated FX rate locking allow international businesses to settle cross-border trade obligations within minutes, significantly reducing counterparty risk.

Central Bank Digital Currency (CBDC) Interoperability
Wholesale Central Bank Digital Currency (CBDC) pilot initiatives are reaching operational maturity across several key financial centers. Collaborative multi-CBDC platforms enable participating central banks and commercial institutions to settle foreign exchange and international trade transactions directly on shared distributed ledgers.

These wholesale digital currency networks eliminate traditional clearinghouse delays and minimize foreign exchange slippage. Enterprise treasury departments benefit from enhanced liquidity management, as cross-border cash balances can be deployed and repatriated instantaneously.

Corporate Treasury Transformation
For enterprise treasurers, instant cross-border settlement transforms cash management strategies:
– Working Capital Optimization: Reduced transaction float allows companies to lower precautionary cash reserves and optimize short-term liquidity investments.
– Automated Reconciliation: Enriched data formats embedded in ISO 20022 payment messages streamline automated general ledger posting and invoice matching.
– Reduced Processing Overhead: Account-to-account (A2A) real-time clearing bypasses costly intermediary correspondent banking fees.

Strategic Financial Priorities
1. Upgrade Treasury Systems: Ensure internal core enterprise software supports real-time ISO 20022 payment messaging standards.
2. Leverage Instant Clearing Rails: Utilize direct payment networks to lower cross-border transaction fees and eliminate settlement delays.
3. Evaluate Multi-Currency Liquidity: Modernize liquidity management frameworks to capitalize on 24/7 real-time settlement capabilities.

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Private Credit Expansion and Regulatory Oversight in 2026 Capital Markets

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6 days ago

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August 9, 2026

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The global private credit market has solidified its role as a fundamental pillar of enterprise finance, expanding rapidly across middle-market lending, asset-backed finance, and infrastructure financing. As non-bank financial institutions capture a larger share of corporate debt origination, global regulatory bodies are increasing oversight to evaluate market transparency and systemic risk interconnections.

Growth Drivers in Direct Lending
Direct lending platforms have continued to attract substantial institutional allocations from pension funds, sovereign wealth entities, and insurance companies seeking attractive risk-adjusted yields. Private debt funds offer corporate borrowers customized financing structures, faster execution timelines, and confidentiality compared to syndicated loan markets.

In 2026, private credit managers are increasingly financing larger corporate transactions, providing multi-billion-dollar credit facilities for buyout deals and corporate restructurings. The flexibility of private debt contracts—featuring unitranche pricing and tailored covenant packages—has made direct lending the preferred capital source for middle-market enterprise sponsors.

Regulatory Scrutiny and Systemic Risk Assessment
The rapid growth of non-bank intermediation has drawn heightened scrutiny from financial regulators in North America and Europe. Because private debt agreements are negotiated privately without public exchange disclosures, central banks are evaluating potential vulnerabilities related to asset valuation consistency and fund liquidity profiles.

Regulatory agencies are introducing guidelines aimed at improving reporting standards for private investment vehicles managing institutional assets. Key focus areas include monitoring leverage ratios within private credit funds and evaluating indirect credit exposures between commercial banking institutions and private debt funds.

Navigating Elevated Refinancing Costs
With benchmark interest rates remaining elevated, private debt borrowers face higher debt service obligations on floating-rate credit facilities. Financial advisory firms report an increase in proactive liability management strategies, including payment-in-kind (PIK) interest options, equity infusions from sponsors, and covenant modifications.

Private credit managers with deep operational capabilities are actively working alongside portfolio companies to optimize working capital and maintain cash flow coverage ratios during periods of higher borrowing costs.

Key Financial Takeaways
1. Mainstream Asset Class: Private credit has expanded beyond niche alternative asset status into a core corporate finance solution.
2. Enhanced Transparency Standards: Regulatory frameworks are evolving toward greater disclosure requirements for private debt managers.
3. Proactive Risk Management: Lenders and sponsors must prioritize debt sustainability and active portfolio monitoring amid high benchmark rates.

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Finance

Venture Capital and Startup Valuations in 2026: Focus on Unit Economics and Sustainable Growth

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1 week ago

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August 5, 2026

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The global venture capital (VC) ecosystem is operating under a disciplined investment framework in 2026. Following years of valuation adjustments and shifting liquidity environments, venture capital firms and private equity investors are prioritizing proven unit economics, positive cash flow pathways, and capital efficiency over rapid, unconstrained user acquisition.

The Shift Toward Disciplined Startup Valuations
Early-stage and growth-stage startup valuations have stabilized at sustainable historical averages. Venture capital partners are conducting rigorous due diligence processes before deploying capital, scrutinizing gross margins, customer acquisition costs (CAC), net revenue retention (NRR), and lifetime value (LTV) metrics.

While total capital deployed remains robust, seed and Series A funding rounds are taking longer to finalize. Founders are expected to demonstrate clear product-market fit and defensible intellectual property rather than relying on top-line revenue projections unsupported by strong underlying economics.

M&A Activity and Liquidity Solutions
The market for venture-backed exits is seeing renewed momentum through strategic mergers and acquisitions (M&A) and secondary market liquidity facilities. Established corporate enterprises are acquiring high-performing technology startups to integrate proprietary artificial intelligence models and specialized software solutions into their product ecosystems.

Simultaneously, secondary market transactions have become an essential liquidity mechanism for early employees and institutional investors. Specialized secondary funds are purchasing pre-IPO shares at discounted valuations, providing liquidity opportunities while companies remain private for longer durations.

Sector Allocation: Deep Tech, Clean Energy, and Enterprise Automation
Venture capital investment is heavily concentrated in deep technology and capital-intensive engineering sectors. High-growth investment themes include:
– Next-Generation Semiconductors: Hardware startups designing specialized AI processors and energy-efficient microchip architectures.
– Clean Technology: Battery chemistry innovations, carbon capture solutions, and grid-scale energy storage startups.
– Enterprise Process Automation: Software platforms that automate complex workflows in healthcare, financial services, and industrial logistics.

Key Insights for Entrepreneurs and Investors
1. Prioritize Capital Efficiency: Startups focused on achieving operational profitability receive higher valuation premiums from institutional investors.
2. Strategic Exit Planning: Corporate M&A is serving as a primary exit route for venture-backed startups navigating prolonged IPO windows.
3. Focus on High-Moat Technologies: Deep tech and proprietary software architectures are securing the majority of growth-stage capital allocations.

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