Hard Landing
Definition:
The Hard Landing is the economic condition, wherein the economy moves sharply from the high growth period to the low growth due to the change in the monetary policy. In other words, the sudden shift in the economy from the period of expansion to recession is called hard landing. Often government intervenes to curb the expansion period that may lead to the inflation in the economy and hence amends the monetary or fiscal policy to control the inflation. The hard landing demands the Central Bank to stiffen the monetary policy, such that the sudden increase in the interest rates would pressurize the demand for the new loans to decline subsequently.
The pace of the economy can be controlled by adopting either of the strategies: tightening the credit policy, adjusting the short-term interest rates, conducting open market operations, re-valuating the currency, etc. The consequences of hard landing may be undesirable to both the companies and the general public. With the increase in the interest rates, the company’s growth may slow down, and even the customer loses confidence in the market. Due to these reasons the economy contracts in a short period of time and reaches to the recession state after the rapid growth period.
The Soft Landing is the economic condition, when the economy shifts from the rapid growth period to low growth or even flattens, but avoids the recession. In other words, the soft landing describes the rate of economic growth, such that, the economy must grow high enough to avoid the recession and must be slowed down enough to prevent high inflation.
The soft landing is typically an economic condition that is reached by making changes in either of the following:
· Through the adjustments in the short-run interest rates, i.e. a temporary increase or decrease in the interest rates to curb the inflation and recession pressures.
· Through tightening of the credit policy, such that less credit is given to the general public or the companies in the form of loans or advances.
· Through open-market operations
· Through the revaluation of the currency.
Thus, to keep a check on the inflation, the government makes amendments in the monetary or fiscal policy and ensures that the economy does not fall sharply to reach the recession. The central bank is required to make the monetary policy stringent enough, so that, the increase in the interest rate is only reflected in the increase in the prices and does not result in a significant increase in the unemployment levels.