A Brief History of Hard and Soft Landings

Alan ReynoldsThis year marks the thirteenth time since 1954 that the Federal Reserve Board ’s policy‐​making Federal Open Market Committee (FOMC) began gradually ratcheting up the federal funds rate on bank reserves in a series of recurring steps. Eventually, however, the rate increases always stopped and the FOMC began bringing the “fed funds rate” back down.The inevitable series of interest rate reductions most often did not begin until recession had already begun, or too shortly before, so those monetary policy experiments are now looked back on as “hard landings.”Whenever the rate increases stopped in time to avoid a  recession, we call that a “soft landing.” Among postwar Federal Reserve interest rates cycles only four have been four soft landings, leaving eight hard landings so far.It is important to note that soft landings always required bringing the federal funds rateback down, not merely stopping the rate increases:The fed funds rate was increased from 3.9% in January 1965 to 5.8% by November 1966, but then it was reduced to 2.9% by July 1967.The fed funds rate was increased from 8.5% in February 1983 to 11.6% in August 1984, but then it was reduced to 7.5% by June 1985.The fed funds rate was increased from 3.1% in January 1994 to 6% that June, but then it was reduced to 4.6% by January 1999.The fed funds rate was increased from 1% in July 2017 to 2.4% in July 2019, but then it was reduced to 1.6% in February 2020 (just before the COVID-19 pandem...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs