“a moderate slowing of economic growth to a rate of about 2% to 3%, which is expected to keep inflation from accelerating.” - www.tdwaterhouse.ca
“The avoidance of both inflation and high interest rates as well as a recession as an economy slows its growth rate”- www.investorwords.com
“When the economy is growing at strong rate, the Fed will try to engineer a soft landing by raising interest rates enough to slow the economy down without putting it into recession.” – www.investopedia.com
The term “Soft Landing”, used by economists and media alike, is today generally understood as describing the process by which the Federal Reserve attempts to use its various powers to prevent or soften recession.
But, given its current, almost ubiquitous use, it’s hard not to wonder how long this term has been applied to economic tinkering and under what circumstances have “Soft Landings” actually been achieved?
It’s widely accepted that Former Federal Reserve Board Chairman Alan Greenspan coaxed the economy into a “Soft Landing” after the bust of the “Dot-Com” bubble. But how was that “success” for economic engineering actually gauged?
NASDAQ is still priced over 50% below its peek set almost seven years ago and there seems to be ample evidence to suggest that, by dramatically slashing interest rates in the wake of the dot-com collapse, the Federal Reserve dampened the effects of the oncoming recession but dramatically fueled the even larger and more pervasive housing bubble we are now vexed with today.
So, it seems that it may be very hard to determine accurately the success of such economic engineering. At the very least, it can be conceded that for an endeavor that’s typically scrutinized and measured through a mind-boggling number of factors (i.e. month to month changes in inflation, retail sales, consumer confidence, money supply, trade deficit, etc.), the relatively rough concept of a “Soft Landing” leaves much to be desired.
A thorough investigation of a range of national newspaper archives results in some interesting findings.
Not surprisingly, for the majority of the 20th century, the term “Soft Landing” was used to describe the events surrounding airplane arrivals or spacecraft touchdowns.
There is virtually no economic reference to “Soft Landing” prior to the late summer and fall of 1973 when, during the Nixon administration, officials were preparing to steer the then booming economy down from it’s heights in the face of widespread rising prices.
The Goal of the Nixon Administration after the "tough Phase IV" economic program is a "phase out" of all controls, according to the director of the
". . . So we have geared out actions (in Phase IV) to pilot the economy into a soft landing at a sustainable level of output — about 4%, "We see no reason why a much-needed slowdown has to turn into an unwanted recession. Already, there are indications that the economy has slowed down in the second quarter (of this years)," Ash said.
The Van Nuys News – August 5, 1973
In a separate speech, Treasury Secretary George P. Shultz said the wholesale price index for all goods will make an astounding jump in August, but inflation should gradually decrease "once the bulge is behind us. Addressing a meeting of the American Bankers Association in
United Press International – August 25, 1973
He dismissed what he called the "gloomy scare talk about a "recession" being on the horizon. "President Nixon has set his sights on a soft landing, not a hard one," Ford said, "as the economy moves into a period of stained economic growth with reasonable price stability."
The
Although, the term “Soft Landing” seems to have been well established in economic circles, it appears that popular use of the phrase may have originated with the recessionary and inflation-wrought era of the 1970s.
