Soft landing (economics)

Last updated
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

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] 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. [9] 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. [10]

See also

Related Research Articles

In economics, a recession is a business cycle contraction that occurs when there is a period of broad decline in economic activity. Recessions generally occur when there is a widespread drop in spending. This may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock, the bursting of an economic bubble, or a large-scale anthropogenic or natural disaster. But there is no official definition of a recession, according to the IMF.

<span class="mw-page-title-main">Economic indicator</span> Measure, which allows statements about the economic situation in general of national economies

An economic indicator is a statistic about an economic activity. Economic indicators allow analysis of economic performance and predictions of future performance. One application of economic indicators is the study of business cycles. Economic indicators include various indices, earnings reports, and economic summaries: for example, the unemployment rate, quits rate, housing starts, consumer price index, Inverted yield curve, consumer leverage ratio, industrial production, bankruptcies, gross domestic product, broadband internet penetration, retail sales, price index, and changes in credit conditions.

Business cycles are intervals of general expansion followed by recession in economic performance. The changes in economic activity that characterize business cycles have important implications for the welfare of the general population, government institutions, and private sector firms.

<span class="mw-page-title-main">Economic policy</span> Actions that governments take in the economic field

The economy of governments covers the systems for setting levels of taxation, government budgets, the money supply and interest rates as well as the labour market, national ownership, and many other areas of government interventions into the economy.

The early 1990s recession describes the period of economic downturn affecting much of the Western world in the early 1990s. The impacts of the recession contributed in part to the 1992 U.S. presidential election victory of Bill Clinton over incumbent president George H. W. Bush. The recession also included the resignation of Canadian prime minister Brian Mulroney, the reduction of active companies by 15% and unemployment up to nearly 20% in Finland, civil disturbances in the United Kingdom and the growth of discount stores in the United States and beyond.

<span class="mw-page-title-main">Early 2000s recession</span> Recession that occurred in the early 2000s

The early 2000s recession was a major decline in economic activity which mainly occurred in developed countries. The recession affected the European Union during 2000 and 2001 and the United States from March to November 2001. The UK, Canada and Australia avoided the recession, while Russia, a nation that did not experience prosperity during the 1990s, began to recover from it. Japan's 1990s recession continued. A combination of the Dot Com Bubble collapse and the September 11th attacks lengthed and worsened the recession.

<span class="mw-page-title-main">Inverted yield curve</span> Phenomenon when shorter term bonds yield higher interest rates than longer term bonds

In finance, an inverted yield curve is a yield curve in which short-term debt instruments have a greater yield than longer term bonds. An inverted yield curve is an unusual phenomenon; bonds with shorter maturities generally provide lower yields than longer term bonds.

<span class="mw-page-title-main">Early 1980s recession</span> Global economic recession

The early 1980s recession was a severe economic recession that affected much of the world between approximately the start of 1980 and 1982. It is widely considered to have been the most severe recession since World War II until the 2007–2008 financial crisis.

Growth Recession is a term in economics that refers to a situation where economic growth is slow, but not low enough to be a technical recession, yet unemployment still increases.

In the business cycle or economic cycle, a hard landing is an economy rapidly shifting from growth to slow-growth to flat as it approaches a recession, usually caused by government attempts to slow down inflation. It is distinguished from a soft landing, in which an economy's growth rate slows enough to control inflation, but remains high enough to avoid recession. The criteria for distinguishing between a hard and soft landing are numerous and subjective.

<span class="mw-page-title-main">Great Moderation</span> Phenomenon in economies of developed nations since the mid-1980s

The Great Moderation is a period in the United States of America starting from the mid-1980s until at least 2007 characterized by the reduction in the volatility of business cycle fluctuations in developed nations compared with the decades before. It is believed to be caused by institutional and structural changes, particularly in central bank policies, in the second half of the twentieth century.

Stock market cycles are proposed patterns that proponents argue may exist in stock markets. Many such cycles have been proposed, such as tying stock market changes to political leadership, or fluctuations in commodity prices. Some stock market designs are universally recognized. However, many academics and professional investors are skeptical of any theory claiming to identify or predict stock market cycles precisely. Some sources argue identifying any such patterns as a "cycle" is a misnomer, because of their non-cyclical nature. Economists using efficient-market hypothesis say that asset prices reflect all available information meaning that it is impossible to systematically beat the market by taking advantage of such cycles.

<span class="mw-page-title-main">Stimulus (economics)</span> Attempts to use monetary or fiscal policy to stimulate the economy

In economics, stimulus refers to attempts to use monetary policy or fiscal policy to stimulate the economy. Stimulus can also refer to monetary policies such as lowering interest rates and quantitative easing.

The 1990s economic boom in the United States was a major economic expansion that lasted between 1993 and 2001, coinciding with the economic policies of the Clinton administration. It began following the early 1990s recession during the presidency of George H.W. Bush and ended following the infamous dot-com crash in 2000. Until July 2019, it was the longest recorded economic expansion in the history of the United States.

The Economic Cycle Research Institute (ECRI) based in New York City, is an independent institute formed in 1996 by Geoffrey H. Moore, Anirvan Banerji, and Lakshman Achuthan. It provides economic modeling, financial databases, economic forecasting, and market cycles services to investment managers, business executives, and government policymakers.

<span class="mw-page-title-main">Early 1990s recession in the United States</span>

The United States entered a recession in 1990, which lasted 8 months through March 1991. Although the recession was mild relative to other post-war recessions, it was characterized by a sluggish employment recovery, most commonly referred to as a jobless recovery. Unemployment continued to rise through June 1992, even though a positive economic growth rate had returned the previous year.

<span class="mw-page-title-main">Economic recovery</span> Phase of the business cycle following a recession

An economic recovery is the phase of the business cycle following a recession. The overall business outlook for an industry looks optimistic during the economic recovery phase.

Since World War II, the United States economy has performed significantly better on average under the administration of Democratic presidents than Republican presidents. The reasons for this are debated, and the observation applies to economic variables including job creation, GDP growth, stock market returns, personal income growth and corporate profits. The unemployment rate has risen on average under Republican presidents, while it has fallen on average under Democratic presidents. Budget deficits relative to the size of the economy were lower on average for Democratic presidents. Ten of the eleven U.S. recessions between 1953 and 2020 began under Republican presidents.

The economic policy of the Joe Biden administration, colloquially known as Bidenomics, is characterized by relief measures and vaccination efforts to address the COVID-19 pandemic, investments in infrastructure, and strengthening the social safety net, funded by tax increases on higher-income individuals and corporations. Other goals include increasing the national minimum wage and expanding worker training, narrowing income inequality, expanding access to affordable healthcare, and forgiveness of student loan debt. The March 2021 enactment of the American Rescue Plan to provide relief from the economic impact of the COVID-19 pandemic was the first major element of the policy. Biden's Infrastructure Investment and Jobs Act was signed into law in November 2021 and contains about $550 billion in additional investment. Biden also signed three major pieces of longer-term economic legislation to repair infrastructure like roads, bridges and water pipes, boost semiconductor investment, and expand green energy.

<span class="mw-page-title-main">2021–2023 inflation surge</span> Global inflation following the COVID-19 pandemic

Following the COVID-19 pandemic in 2020, a worldwide surge in inflation began in mid-2021 and lasted until mid-2022. Many countries saw their highest inflation rates in decades. It has been attributed to various causes, including pandemic-related economic dislocation, supply chain disruptions, the fiscal and monetary stimulus provided in 2020 and 2021 by governments and central banks around the world in response to the pandemic, and price gouging. Preexisting factors that may have contributed to the surge included housing shortages, climate impacts, and government budget deficits have also been cited as factors. Recovery in demand from the COVID-19 recession had, by 2021, revealed significant supply shortages across many business and consumer economic sectors.

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. 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.
  10. Mena, Bryan (July 25, 2024). "The US economy is pulling off something historic". CNN.com. Retrieved August 1, 2024.