What's the Difference Between a 'Hard' and 'Soft' Landing? - Adviser Investments

What’s the Difference Between a ‘Hard’ and ‘Soft’ Landing?

August 4, 2022

If, like so many of our clients, you’re a regular consumer of financial news, you’ve surely heard Federal Reserve Chair Jerome Powell discussing the central bank’s aim for a “soft landing” resulting from its interest-rate hike policy. Interim Chief Investment Officer and Director of Research Jeff DeMaso parsed the difference between a “hard” and “soft” landing in Fed-speak —and each outcome’s potential impact on long-term investors—in our recent webinar,* Bear Market Playbook.

Please enjoy the excerpt below and click here for the full webinar replay to hear more. 


Jeff DeMaso:

“Hard” and “soft” landing refers to the Fed’s ability to try and thread a needle here. The central bank is increasing interest rates in an attempt to slow the economy and tame inflation. Now the question is whether they can, “get that right,” whether they can slow down the economy just enough that inflation comes down, but they do it without tipping us into a recession. That would be a “soft” landing.

The “hard” landing means that the Fed overshoots the mark and we find ourselves into a recession.

At least from a market perspective, the impact is probably the depth and duration of the bear market associated with this slowdown in growth and or recession. Bear markets that happen in and around recessions tend to last longer and have larger declines. But not all bear markets are associated with recessions, and those tend to be a little bit milder.

We’re already in a bear market, stocks have been down about 20% or so. So the market is to some extent pressing in and is worried about the potential for a hard landing, but maybe your view on the course of the market, at least in the short term, depends on your view on whether the Fed will be able to engineer this hard or soft landing.

Click here for a replay of Bear Market Playbook. Please contact us at (800) 492-6868 to learn more about comprehensive wealth management solutions.


*Webinar recorded after the market closed on Wednesday, July 27, 2022.

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