Soft Landing

A soft landing is when a central bank raises rates enough to bring inflation down without pushing the economy into recession. The image is an aircraft touching down gently.

It is hard because the controls are imprecise. Rate rises take roughly a year to show their effect, and conditions keep changing meanwhile — like a car that slows long after the brake is pressed.

Press too lightly and inflation persists; press too hard and the economy breaks. The latter is a hard landing, where prices come down through surging unemployment and business failures.

Historically, successes are rare. Episodes requiring a large fall in inflation that ended without recession can be counted on one hand — a measure of how difficult the manoeuvre is.

For investors, reading this phase matters. A soft landing lets equities hold up, while a hard landing breaks the earnings outlook itself. Which one it was usually becomes clear only afterwards.