Soft landing

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This article is about a period of downturn in an economic cycle. For other uses, see Soft landing (disambiguation).

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]

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"[3].

As it stands, these forecasts have very little scientific value and there is not one single verifiable instance of a soft landing following an economic bubble. Similar claims were made repeatedly by vested interests (VIs) about the prospects for the housing market in The U.S. but there is now an almost unanimous consensus that the United States housing bubble is undergoing a significant market crash.

[edit] See also

[edit] 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. ^ Business Report, South Africa 1 Feb 2007
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