Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Hard Landing

What it is:

A hard landing refers to an abrupt downward shift in economic growth resulting from monetary policy.

How it works (Example):

Inflation historically accompanies periods of economic expansion. In the U.S., the Federal Reserve has an obligation to control inflation through monetary policy, specifically via adjusting short-term interest rates and conducting open market operations.

A hard landing can occur when a central bank raises rates excessively during a period of economic expansion. The consequent increase in interest rates places downward pressure on the demand for new loans. Companies experience a slowdown in growth and consumer confidence falls, causing the economy to contract quickly in a short amount of time.

Why it Matters:

Monetary policymakers generally try to circumvent hard landings by making incremental rate adjustments small enough to maintain consistent price levels without disturbing upward growth.