DEFINITION of ‘Hard Landing’
An economic state wherein the economy is slowing down sharply or is tipped into outright recession after a period of rapid growth, due to government attempts to rein in inflation. A hard landing may be the undesirable consequence of efforts by a nation’s central bank to tighten monetary policy, so as to slow down growth and keep inflation in check. While a soft landing is generally the objective of such tightening measures, a hard landing may be the occasional – and unfortunate – result.
BREAKING DOWN ‘Hard Landing’
For example, China’s rapid economic growth in recent years has often given rise to speculation about the possibility of a hard landing, in which the economy slows down from a double-digit rate to a growth pace in the low single digits. This could occur if measures by the Chinese government to tighten monetary policy slow down growth faster than it expects, or would like.
In the United States, a hard landing is the occasional outcome of the Federal Reserve’s tightening cycle, during which the federal funds rate is steadily ratcheted higher over a period of many months.