Glossary · Economy
Soft landing
A soft landing is when a central bank slows an overheating economy enough to bring inflation down without causing a recession.
Aug 2023, up from 0.06% before the hikes began in March 2022.
Nov 2025. Lowest: 3.4% (Apr 2023).
November 9, 2026.
In plain words
Think of a plane coming in to land. Come down too fast and it slams into the runway; ease it down and the passengers barely notice. When inflation runs hot, the central bank raises interest rates to slow the economy. If it slows growth just enough to cool prices without tipping the economy into a recession, that is a soft landing. If it overdoes it, a hard landing.
It is hard because rates work with long and variable lags: the effect on spending and prices shows up a year or two later, so the central bank has to steer by forecasts.
Soft landings are rare. The one most often cited is 1994–95, when the Fed raised its rate from 3.1% to 6.0% and no recession followed. In 2022–23 it raised the rate from near zero to 5.33% by Aug 2023. The last recession dated by the NBER ended in April 2020, before those hikes began.
Example
Steering by the rear-view mirror
- Inflation is 6% and unemployment 3.5%. The central bank raises its rate from 0% to 5% over a year.
- Higher rates make mortgages and business loans dearer; home sales and investment slow within months.
- A year or two later inflation drifts down toward 2%, and unemployment edges up to 4.2%: slower, but no wave of layoffs. Soft landing.
- Had the bank pushed on to 7%, unemployment might have jumped to 7% in a recession: a hard landing.
The art is knowing when to stop, while the data still show yesterday’s economy.
One level deeper
Economists often judge a landing by unemployment. One rule of thumb, the Sahm rule, signals a recession when the three-month average jobless rate rises half a point above its low of the past year; a soft landing keeps the rise smaller.
In 1994–95 the Fed moved early, before inflation took off, and stopped in time; the expansion lasted until 2001. Most other tightening cycles, such as those of 1973–74, 1979–81 and 2004–06, were followed within a few years by recessions.
The 2022–23 hikes were the fastest since the early 1980s. Unemployment moved between 3.4% and 4.5% after the hikes began. Many economists called it a soft landing; others said it was too early to judge.
Rate hikes, unemployment and recessions since 1954
When the rate line climbs for a year or more, a recession (shaded) and a jump in unemployment usually follow. The exceptions, like 1994–95, are the soft landings.
The numbers behind the chart
| Date | Federal funds rate | Unemployment rate |
|---|---|---|
| Jul 1954 | 0.8% | 5.8% |
| Dec 1960 | 2.0% | 6.6% |
| Dec 1970 | 4.9% | 6.1% |
| Dec 1980 | 18.9% | 7.2% |
| Dec 1990 | 7.3% | 6.3% |
| Dec 2000 | 6.4% | 3.9% |
| Dec 2010 | 0.2% | 9.3% |
| Dec 2020 | 0.1% | 6.7% |
| Dec 2022 | 4.1% | 3.5% |
| Dec 2023 | 5.3% | 3.8% |
| Dec 2024 | 4.5% | 4.1% |
| Dec 2025 | 3.7% | 4.4% |
| Nov 2026 | 3.9% | — |
Why it matters
It is what every central bank aims for when it fights inflation; the difference between a soft and a hard landing is millions of jobs.
Markets swing on the odds: stocks, bonds and the dollar all move with how likely a recession looks.
It shows the limits of policy: the tools are blunt and slow, and luck, like oil prices falling at the right time, plays a part.
A common mistake
Myth: Raising interest rates always causes a recession.
In fact: Often, but not always. In 1994–95 the Fed raised its rate from 3.1% to 6.0%, and the expansion went on for six more years.
Questions people ask
What is the difference between a soft and a hard landing?
Both bring inflation down. A soft landing does it with only a mild rise in unemployment; a hard landing causes a recession.
Did the US have a soft landing after 2022?
By the usual tests it looks like one so far: the Fed raised its rate to 5.33% by Aug 2023, inflation came down from its 2022 peak, and unemployment has stayed between 3.4% and 4.5%.
What is a no landing?
A newer phrase for when the economy keeps growing fast despite higher rates, so inflation does not come down and rates may have to rise further.
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About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- US recessions (NBER business cycle dates): National Bureau of Economic Research (NBER), Business Cycle Dating Committee: US Business Cycle Expansions and Contractions.
- Effective federal funds rate: Board of Governors of the Federal Reserve System, H.15 Selected Interest Rates, series H15/H15/RIFSPFF_N.D (Federal funds effective rate), Data Download Program. The EFFR is subject to the Terms of Use posted at newyorkfed.org. The New York Fed is not responsible for publication of the EFFR by BigCapital, does not sanction or endorse any particular republication, and has no liability for your use.
- Unemployment rate: U.S. Bureau of Labor Statistics, Current Population Survey (household survey), series UNRATE; retrieved from FRED, Federal Reserve Bank of St. Louis.
- This page explains a term. It is not investment advice.