• A Bank of America survey shows 47% of global fund managers expect a soft landing, with only 5% anticipating a hard landing.
  • Rate-cut expectations have plunged, with 40% now expecting a Fed hike in the next year versus 28% expecting cuts.
  • Resilient consumer spending and a robust labor market underpin the soft-landing narrative, but volatility persists.

Soft Landing Optimism Prevails

Global investors are increasingly betting that the world’s major economies will dodge a deep downturn, according to Bank of America’s latest Global Fund Manager Survey. Forty-seven percent of respondents now expect a “soft landing,” where inflation cools without triggering a recession, while only 5% foresee a hard landing. Another 40% predict no landing at all, suggesting inflation may remain sticky.

“The narrative has shifted from fears of a sharp contraction to a more benign outlook,” one portfolio manager said, speaking on condition of anonymity. The survey, which polled over 200 fund managers with nearly $600 billion in assets under management, underscores a growing belief that central banks can tame inflation without causing major economic damage.

Rate Expectations in Flux

Despite the optimism, expectations for interest rate cuts have fallen sharply. Only 28% of respondents now expect the Federal Reserve to cut rates in the next year, down from a majority earlier this year, while 40% anticipate a hike. This shift reflects sticky inflation data and a still-strong labor market, which have pushed back the timeline for monetary easing. “The path for rates is highly data-dependent,” noted a strategist at a major Wall Street bank.

Underpinnings of the Soft Landing

The soft-landing view leans heavily on resilient consumer spending and a robust jobs market. Recent reports show unemployment remains near historic lows, and wage growth, while slowing, still supports household spending. “If consumers keep spending and companies keep hiring, the economy can muddle through,” said an economist at a global asset manager. However, diverging views on the Fed’s next move imply continued volatility in both fixed income and equity markets as traders recalibrate around each new data release.

Looking Ahead

Short-term, markets are likely to remain sensitive to inflation and employment figures, with any surprise potentially swinging rate expectations. Longer-term, if inflation continues to moderate and growth stabilizes, a gradual easing cycle could bolster risk appetite. But external shocks—from geopolitics to supply disruptions—remain wild cards. “We’re cautiously optimistic, but we’ve been burned before,” the portfolio manager added.