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Definition

Soft Landing

What is a Soft Landing?

A Soft Landing means that the economy slows developing but still doesn't enter into a recession. It refers to the federal reserve's attempts to strengthen interest rates enough to keep an economic system from overcharging and incurring excessive inflation. 

They avoid a harsh landing which would result in a significant economic downturn. It can sometimes apply to an economic area that is slowing but not collapsing. A soft landing refers to the gradual softening of the economic system following a period of fast boom.

Understanding Soft Landing

In the broader economy, a soft landing occurs when an industry transitions from expansion to slow economic growth to possibly flat while it reaches yet avoids a recession. After a financial or share market bubble, an easy landing has never occurred. Even though a bubble might no longer be a bubble unless it was preceded through one of these landings. That is why the mention of these landings is regarded with doubt. Some economic theory suggests it is nothing but economic jargon.

Most authorities desire a soft landing but it becomes possible only when a rising industry is gradually lowered without destroying employment or imposing unnecessary economic uncertainty on individuals and businesses who have taken loans. Sadly, the more overheated an economic system is by external stimuli, the more it is exposed to a hard landing as a result of even slight growth restrictions.

The landing may presently indicate not just a slowdown of development but an economic downturn. It might be possible that such an effective landing of 1995 had a relation with the country's economic structural change. In the backdrop of the IT era, it had an influence on performance and efficiency.

Practical Examples

A soft landing can be done by incorporating adjustments like-

  • Interest rates are temporarily raised or decreased to control inflation and downturn factors
  • Credit policy tightening, resulting in very little credit being extended to the overall population or businesses in form of debt or credits
  • Undertakings on the open market
  • The exchange rate adjustments

In Sentences

  • The term soft landing is widely used as a financial or economic term that indicates a government or central bank's initiative to avoid the high inflation rate in an economy.

 

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