Atlas Macro

Economy

Soft Landing

When a central bank raises interest rates enough to bring inflation down without causing a recession. The opposite, a hard landing, is when tightening tips the economy into recession.

Key points

  • The aim of most rate-rising cycles, but historically hard to achieve.
  • The US in 1994-95 is the classic example.
  • Often only recognised in hindsight, once the risk of recession has passed.

Example

If inflation falls back towards 2% while unemployment rises only slightly, economists call it a soft landing.

In history

In 1994-95 the Fed doubled its rate from 3% to 6% and the economy kept growing. In 2022-24 the US brought CPI inflation down from 9.1% to under 3% without a recession, which many economists described as a soft landing.

Related terms