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

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

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.

Disclaimer: This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Our statements and opinions are subject to change at any time, without notice and should be considered only as part of a diversified portfolio. Mutual funds and exchange-traded funds mentioned herein are not necessarily held in client portfolios. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

You may request a free copy of the firm’s Form ADV Part 2A, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

Past performance is not an indication of future returns. We do not provide legal or tax advice, nor sell insurance products. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Always consult an attorney or tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.

© 2022 Adviser Investments, LLC. All Rights Reserved.