Aeronautical metaphors for the US economy (and, more to the point, the Fed’s efforts to micromanage it) are so clichéd by now that they invariably elicit eye rolls. As such, I’m almost reluctant to employ them.

But they do have some explanatory power, and their ubiquity makes them hard to ignore. Soft landing and hard landing were, of course, already in the lexicon, but “no landing” is a new entrant.

There’s not always a bright line distinction between soft landing and no landing. They share some key characteristics, the most obvious of which is the absence of a deep recession or a recession at all, for that matter. No landing differs in the pace at which the economy continues to expand — quicker, even above-trend, as opposed to slower, below-trend, in a soft landing.

Above-trend growth when core inflation is still well beyond target and the labor market remains tight is seen as perilous or, at the least, as conducive to additional monetary tightening and a longer stay at terminal. That, in turn, risks a hard landing later on down the road.

Implicit in those admittedly convoluted talking points is the idea that the line between soft landing and no landing is blurry enough that the Fed could mistake the two, on the way to running policy too restrictive for too long. They’re cognizant of that risk. When Jerome Powell debates the “balance of risks” during press conferences, that’s in part what he means. Last year, the risk of doing too little to curb inflation clearly outweighed the growth and employment risks associated with rapid tightening. Now, things are nowhere near as clear cut. If the Fed mistakes a soft landing for a no landing and over-tightens, look out below.

In his latest, BofA’s Michael Hartnett suggested that’s among the biggest threats for the remainder of the year. The Goldilocks range for 30-year US yields is between 3.6% and 4.1%, he said, on the way to taking note of last week’s bond market theatrics, which he attributed to the BoJ, Fitch’s decision to downgrade the US and the recent run higher for commodities. The fireworks were also attributable (mostly attributable, I’d argue) to supply jitters around the refunding announcement. Whatever the case, 30-year yields are out of the Goldilocks range at ~4.30%.

Hartnett also flagged the highest real yields in a dozen years. The figure below shows the breakdown by week for 10s.

Note that out of the 21bps 10-year yields rose over the past two weeks, 18bps was in reals. Last week’s move would’ve been much more dramatic were it not for the Friday, NFP-driven rally.

Hartnett has, in the past, pointed to the level of 10-year reals which popped prior equity bubbles or otherwise preceded chaos. The implication (sometimes he’s been quite explicit about it) is that 10-year reals just aren’t high enough yet to undermine risk appetite or burst 2023’s valuation bubble. Maybe 2% would get us closer to some kind of reckoning. Prior to Friday’s bond rally, 10-year reals were 1.83%.

It’s interesting how all of this fits into the dollar story. Goldman has a “shallow dollar depreciation” thesis which, as the name implies, suggests that although the dollar could weaken, the scope of any weakness will likely be limited by a number of factors, most of which are directly related (tangentially at the least) to everything said above.

“In our view, the dollar moves [last] week mostly reflect a ‘temperature check’ on the uncomfortable ‘Goldilocks’ balance between solid activity data, and still a lot of fiscal spending, but softer inflation expectations,” the bank’s Kamakshya Trivedi wrote, before noting that in Goldman’s view, “the risk to ‘Goldilocks’ tilt[s] towards eventually finding things running ‘too hot’ rather than ‘too cold’, which is one reason why yields and the dollar [may] be ‘stickier’ than commonly believed, despite clear progress towards a better balance.”

Ultimately, Trivedi went on, US economic outperformance “and the policy restrictions that may require” may “sustain the dollar’s high valuation.”