Soft Landing
A central bank achieving inflation reduction through rate hikes without triggering a recession.
What is Soft Landing?
A soft landing is the outcome in which a central bank successfully reduces inflation from an elevated level to its target by raising interest rates, without causing a recession or a significant sustained rise in unemployment. The concept is borrowed from aviation: the economy descends from an overheated, high-inflation trajectory to a more sustainable growth path smoothly rather than crashing (a hard landing). Soft landings are notoriously difficult to engineer because monetary policy operates with long and variable lags, making it hard to calibrate the precise level of tightening required: too little risks entrenched inflation, while too much triggers a downturn. Historical evidence suggests true soft landings—where the unemployment rate does not rise sharply—are rare and often depend on favorable supply-side developments beyond central bank control.
Example
The 2022–2024 US monetary tightening cycle was widely debated as a potential soft landing case. The Federal Reserve raised the federal funds rate by 525 basis points in 18 months—from near-zero in March 2022 to 5.25%–5.50% by July 2023. By mid-2024, headline PCE inflation had fallen from a peak of approximately 7% to near the 2% target, while US GDP continued growing and unemployment remained below 4%—the clearest soft landing outcome since the mid-1990s Greenspan-era cycle that avoided recession despite significant rate hikes.