Major moments in markets tend to come with some sort of gimmick to explain them. In 2020, it was letters of the alphabet. After the initial Covid crash in markets and in the economy, investors focused on what shape the recovery would take. Would it be V-shaped, with a rapid pick-up from the depths? Or W-shaped, with a succession of setbacks? Or would it take an L-shape, with us all getting knocked down, unable to get up again?
Economists and central bankers spent considerable time using letters to help the public understand what might lie ahead. In the end, the V prevailed. Now, a historic overshoot in inflation is causing concern — the invisible hand drawing the upward flick in the winning letter just won’t put the pen down.
Central bankers are fighting back but the letters have been discarded. Instead, the framework to help us all understand the task for Fed chair Jay Powell and fellow policymakers, has been focused on landings: hard landings, soft landings, and bumpy landings in between.