Soft Landing
A tightening cycle that returns inflation to target without triggering a recession — historically rare, usually requiring favorable supply-side luck.
Definition
A soft landing is the outcome central banks claim to engineer when they raise rates: cooling demand enough to bring inflation down while keeping unemployment stable. It requires a near-perfect calibration of policy, plus a real economy that is more rate-sensitive than wage-driven inflation.
The historical base rate is low: most hiking cycles end in recession or with inflation re-accelerating.
Why it matters
Soft-landing pricing — long duration, long credit, long equities — is highly asymmetric. Wrong-footed soft-landing trades define the largest macro losses of the past decade.
Worked example
1995: the Greenspan Fed cut rates pre-emptively after a hiking cycle and avoided recession. Often cited as the only clean soft landing in the modern era.
Frequently asked
Why is a soft landing so rare?⌄
What signals one is failing?⌄
Does it matter which inflation measure?⌄
How do markets price soft landing?⌄
Track it on Market Ontology
Related terms
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