Soft Landing in Economics 2025: Definition, History & 2022 Mini-Recession Explained

Erika Rasure is a globally acclaimed expert in consumer economics, financial therapy, and transformational coaching, with a focus on empowering women to invest confidently.

What Exactly Is a Soft Landing in Economics?

A soft landing refers to a controlled economic slowdown that successfully avoids tipping into a recession. This process aims to cool down the economy and reduce inflation without causing a severe downturn.

Central banks, like the Federal Reserve, pursue a soft landing by carefully adjusting interest rates—raising them just enough to prevent overheating but not so much that economic growth is sharply curtailed.

Additionally, the term can describe a smooth and gradual deceleration in major industries or economic sectors, minimizing disruptions.

Key Insights

• A soft landing signifies a gentle slowdown ending without a recession.
• It implies the economy resumes growth smoothly after moderation.
• Central banks target soft landings during rate hikes to control inflation.
• Historically, the Fed’s success with soft landings has been mixed.

Understanding the History and Challenges of Soft Landings

While soft landings in aviation are routine, achieving them economically is far more complex. The phrase gained prominence during Alan Greenspan’s tenure as Fed Chair, notably credited with engineering a soft landing in 1994-1995.

Jerome Powell, the current Fed Chair, also referenced soft landings in 1965 and 1984 and anticipated another in 2020 before the COVID-19 pandemic disrupted economic conditions.

Contrastingly, every instance of inflation surpassing 5% since the 1970s has been followed by a recession in years like 1970, 1974, 1980, 1990, and 2008.

The 2022 Mini-Recession Explained

In 2022, inflation rates exceeded 5%, and the economy technically experienced a recession during the first two quarters based on GDP contraction. However, growth returned in the third quarter, aided by the Fed’s incremental interest rate hikes aimed at curbing inflation.

This scenario exemplifies the delicate balancing act central banks face to engineer a soft landing amid inflationary pressures.

Did You Know?

The term "soft landing" originally comes from aviation, describing a smooth and controlled airplane touchdown.

Special Factors Influencing Soft Landings

The Federal Reserve’s ability to engineer soft landings is limited by unpredictable economic variables. Unlike a pilot who directly controls an aircraft, the Fed relies on blunt instruments like interest rate adjustments and asset purchases, which cannot directly fix supply chain issues or pandemic shocks.

Former Fed Chair Ben Bernanke famously compared monetary policy to driving a car with faulty instruments and delayed responses, highlighting the inherent challenges.

Soft Landing vs. Hard Landing: What’s the Difference?

Central banks manipulate interest rates to manage inflation. Raising rates slowly and cautiously aims for a soft landing—gradual economic cooling without recession. Conversely, aggressive or premature hikes risk causing a hard landing, triggering a sharp recession with severe economic consequences.

Main Drivers of Inflation

Inflation arises mainly from demand-pull factors (excess demand over supply), cost-push pressures (rising production costs), increased money supply, wage growth, and currency devaluation.

Core Monetary Policy Tools

Central banks regulate the economy using three primary tools: adjusting bank reserve requirements, setting the discount rate for financial institutions, and conducting open market operations involving securities trading.

Final Thoughts

Achieving a soft landing remains a complex and uncertain endeavor due to delayed effects of monetary policy and unpredictable economic conditions. Success depends not only on skilled policymaking but also on favorable timing and a bit of luck.

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