Landings, Soft and Hard: The Federal Reserve, 1965–2022

Abstract

“Soft landings,” that is, cases in which the central bank tightens monetary policy to fight inflation but does not cause a recession (which would be a “hard landing”, are thought to be difficult to achieve and extremely rare. According to the conventional wisdom, the Federal Reserve has managed to achieve only one soft landing in the past 60 years—in 1994–1995. This paper studies the eleven episodes of monetary policy tightening by the Fed since 1965, and concludes that the central bank has a better record than that—that as long as the criteria for softness are not too stringent, and Fed was actually trying to land the economy softly, the Fed has succeeded several times. Achieving a soft landing, however, requires both skill in managing monetary policy and the absence of adverse external shocks.