Soft Landing - Explained
What is a Soft Landing?
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Table of ContentsWhat is a Soft Landing?How does a Soft Landing Work? Academic Research on Soft Landing
What is a Soft Landing?
Avoiding a cyclical economic crash like recession while maintaining a semblance of stability and growth even under difficult economic circumstances is called a Soft Landing. Keeping inflation and unemployment in check while taking measures to stimulate growth can save an economy from a hard downturn and cushion its nosedive to a Soft Landing. The term can also be applied to specific industry verticals that are on the decline but avoid total burnout.
How does a Soft Landing Work?
Former Chairman of the United States Federal Reserve, Alan Greenspan, conceived of the concept and also crafted its execution in 1994 - 1995, by increasing interest rates without sending the economy into a tailspin. A hard landing could spiral out of control with unemployment reaching peak numbers while growth remains stagnant. Usually, central banks and governments work in tandem to fine tune monetary policies and procedures to avoid a crash landing when a downturn is imminent. These measures arent always as successful for real as they are on paper and cause unseen problems down the line like the asset bubble in the housing sector in 2001 which was blamed on the heavy rate cuts preceding it. Historically, most economic bubbles are caused by micro policies that fail to take in the 360 degree picture or correctly forecast the negative repercussions of such policies. These bubbles arent followed by Soft Landings in the real world scenario. Conservative economists go so far as to dismiss Soft Landings as economic mumbo jumbo not worthy of literature reviews. A Soft Landing is being engineered for the US economy since 2018 to increase employment even as interest rates are being raised to arrest inflation. Economists fear this is going to end badly with wage-price spirals, forcing excessive interest rates increase leading to a recession like state.