A Closer Look at the Fed's 'Soft Landing'

As we move into the final countdown to the US elections, I wanted to address the heavily touted concept of our economy having a so-called soft landing.  This occurs when the Fed successfully tames strong inflationary pressures with sharp interest rate hikes, and then manages to lower rates at just the right pace in order to guide the economy towards stable growth without inducing a recession in the process.

As far as I have seen, the only time the Fed managed to accomplish this deft maneuver was in 1994-1995.  The world was a very different place at that time.  Germany was still moderating the explosive growth that followed the massive investment associated with the unification of East and West Germany during the prior years.  Japan was reeling from its bubble-economy bursting, and China’s economy was growing at 9% a year as they entered the global economy in a massive way as a low-cost producer of goods for the West.  In fact, the late 1980’s and early 1990’s ushered in a thirty-year cycle of disinflation which made the job of central bankers much easier.