What a soft landing for the economy means for your clients

Many experts are coming to believe that the Federal Reserve will engineer a soft landing, where inflation slides toward the central bank's 2% target and the economy doesn't fall into recession.

Goldman Sachs economist Jan Hatzius sees only a 15% chance of recession in 2024 while he predicts GDP growth of 2.1%. GDP gained an annualized 5.2% in the third quarter.

Related: What Is a Soft Landing? Definition, Explanation & Example

Meanwhile, inflation will dip to a range of 2% to 2.5% by the end of next year, down from 3.1% in the 12 months through November 2023, he predicted.

Others are optimistic, too. "What we are expecting now is a soft landing," Nancy Vanden Houten, lead U.S. economist at Oxford Economics, told The Wall Street Journal. "We expect the economy to weaken quite a bit, but it does look like we'll avoid an outright contraction."

So what would a soft landing mean for you? While one can never be sure, given the difficulty of predicting financial conditions, the implications appear mixed.

Interest Rates: The impact on consumers

First, there's interest rates. Most experts expect the Fed to lower rates next year, starting by May. The idea is that the Fed will want to fight economic weakness and keep inflation-adjusted rates from getting too high as inflation slips.

Interest-rate-futures prices indicate a 56% probability that the Fed will cut rates by at least 1.25 percentage points next year. The federal funds rate now stands at 5.25% to 5.5%.

What's the impact on you, the consumer?

On the minus side lower interest rates mean a decline in yields on your money-market accounts, savings accounts and certificates of deposit. It also would depress yields on bonds you might want to buy.

Many money-market funds now yield 5% or more, but that yield will likely drop in a hurry if the Fed cuts rates.

On the plus side, a decline in rates would mean lower rates on your loans: mortgage, auto, credit card, student loan and personal loan. That could make a major difference in your finances.

Lower rates: Benefits for your investments

Another positive could be rising financial markets. Lower rates often boost stocks by buoying the economy and reducing companies' borrowing costs. So your stocks may gain in value.

Falling rates by definition mean lower bond yields and higher bond prices. So if you're holding bonds you want to sell, you may have a good opportunity. To be sure, if you're looking to buy bonds, you'll be buying them with lower yields.

One caveat on rates: If the Fed is able to spur a Goldilocks scenario, with moderate economic growth and falling inflation, it might not cut rates much. In that case, these effects cited above would be dulled.

If the economy slows substantially, your job opportunities could be depressed. But if economic weakness leads the Fed to cut interest rates significantly, you could experience the pluses and minuses of lower rates.

Given all the uncertainty, you might not need to adjust your investment and spending plans now. But you may have to make some adjustments later depending on how it all plays out.

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