Soft landing (economics)

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Proposed economic waves
Cycle/wave namePeriod (years)
Kitchin cycle (inventory, e.g. pork cycle)3–5
Juglar cycle (fixed investment)7–11
Kuznets swing (infrastructural investment)15–25
Kondratiev wave (technological basis)45–60
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A soft landing in the business cycle is the process of an economy shifting from growth to slow-growth to potentially flat, as it approaches but avoids a recession. It is usually caused by government attempts to slow down inflation. [1] The criteria for distinguishing between a hard and soft landing are numerous and subjective.

The term was adapted to economics from its origins in the early days of flight, when it historically was the method of the landing of hot air balloons, by gradually reducing their buoyancy. It later also applied to aviation, gliders and spacecraft, as in the Lunar lander.

In the United States, modern recessions and hard and soft landings follow from Federal Reserve tightening cycles, in which the Federal funds rate is increased over several consecutive moves. In modern times, the most notable, and possibly the only true soft landing in the most recent 16 business cycles occurred in the soft landing of 1994, engineered by Federal Reserve Chairman Alan Greenspan through fine tuning of interest rates and the money supply. [2] A soft landing by a central bank is when "the central bank tightens monetary policy to fight inflation but does not cause a recession". [3] If it causes a recession, then it is a hard landing. [3]

In addition to being a certain type of business cycle, a soft landing may also refer to a market segment or industry sector that is expected to slow down, but to not crash, while the wider economy may not experience such a slow down at that time. For example, a contemporary newspaper headline read "Soft landing forecast for house prices as rate hikes stem growth". [4]

One of the main goals of the Joe Biden administration was to achieve a soft landing in order to avoid a recession. [5] [6] [7] In 2024, economists estimated that the U.S. was successfully achieving a soft landing. [8] [9] By early 2024, the New York Times wrote that the United States stood out among economies worldwide in its strength and that the United States had successfully managed to reduce inflation without the kind of hardship that many economists had expected would occur. [10] The United States is projected to achieve another soft landing as key economic benchmarks indicate after the second quarter of 2024 that inflation is projected to return to the Federal Reserve's target of 2% per annum without a recession occurring. [11]

See also

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References

  1. ↑ Soft Landing, investopedia.com
  2. ↑ Whither Goldilocks?, The Big Picture, September 22, 2006 | Sources: Business Outlook Survey, Federal Reserve Bank of Philadelphia September 2006, http://www.phil.frb.org/files/bos/bos0906.html | U.S. LEADING ECONOMIC INDICATORS, The Conference Board U.S. Business Cycle Indicators, AUGUST 2006, http://www.econbrowser.com/archives/2006/09/can_it_be_that.html
  3. 1 2 Blinder, Alan S. (2023). "Landings, Soft and Hard: The Federal Reserve, 1965–2022". Journal of Economic Perspectives. 37 (1): 101–120. doi: 10.1257/jep.37.1.101 . ISSN   0895-3309.
  4. ↑ Business Report, South Africa 1 Feb 2007
  5. ↑ "Federal Reserve lends credence to Joe Biden's promise of a soft landing for the US economy". www.ft.com. Retrieved 2024-07-21.
  6. ↑ "Biden Adviser Says Soft Landing Helped by Public-Spending Boost". Wall Street Journal. 2024.
  7. ↑ Mena, Bryan (2024-07-25). "The US economy is pulling off something historic | CNN Business". CNN.
  8. ↑ "US economy is heading for soft landing, FT survey says". www.ft.com. 2024.
  9. ↑ Morrow, Allison (2024-10-07). "Good news: The 'hard landing' forecasters got it wrong | CNN Business". CNN.
  10. ↑ Smialek, Jeanna; Swanson, Ana; Rappeport, Alan; Tankersley, Jim (2024-02-02). "The Soft Landing Is Global, but It's Cushiest in America". The New York Times. ISSN   0362-4331.
  11. ↑ Mena, Bryan (July 25, 2024). "The US economy is pulling off something historic". CNN.com. Retrieved August 1, 2024.
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