What is a Hard Landing?

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

How Does a Hard Landing Work?

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 Does a Hard Landing Matter?

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

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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