Throughout this volatile economic year, with many economists predicting that the country is headed for, or already in, a recession, you may have heard them refer to the need for a ‘soft landing’. What does this mean? The term ‘soft landing’ comes from aviation, where it refers to the kind of landing that goes smoothly. In economics, it refers to a cyclical slowdown in economic growth that avoids recession.1 Central banks, like the Federal Reserve, aim for a soft landing when they raise interest rates to curb inflation.
A country’s central bank adjusts interest rates to manage the economy. If inflation is too high, a central bank will increase interest rates with the goal of slowing down spending. If the central bank raises interest rates too high or too soon, that would be a hard landing. If the central bank raises interests slowly or by a small amount, that is a soft landing. There is a fine line between the two and how the raising of interest rates will impact the economy.
The Fed’s soft landings record is, at best, mixed because the central bank doesn’t have nearly the same control over the course of the economy as a pilot has over aircraft. The Fed’s main policy tools – interest rates and asset holdings – are blunt instruments, not designed to solve supply chain disruptions or pandemics.2
At a local level, our controls are even fewer. A town can raise, or lower, taxes annually. It can reassess the value of property every five years. It can offer tax incentives to spur business investment and expansion. In the moment, however, what we can all do, town and citizens together, is focus on the businesses that are here in town already and make sure that they are surviving or, better yet, thriving. We do this by making our community a place that is friendly to new business growth. The town can do this by simplifying the regulatory process and refining the ease of opening a new business. Citizens can do it by supporting the many fine area businesses through shopping and dining local.
This Fall, let us all follow the flight plan to ensure that Southbury’s economy has a soft landing. Then, we will really see it takeoff.
References
- https://www.thestreet.com/dictionary/s/soft-landing
- https://www.northerntrust.com/united-states/insights-research/2022/weekly-economic-commentary/skill-meets-luck
Kevin Bielmeier
Economic Development Director
Town of Southbury
EcoDevDirector@southbury-ct.gov
(203) 262-0683
[This article first appeared in Southbury Neighbors magazine.]