Hard Landing
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Hard Landing
A situation in which a central bank raises interest rates significantly to curb inflation and, in doing so, drives the economy into recession. For example, in 1981, the Federal Reserve raised the fed funds rate to 20%, which caused inflation to drop from 13.5% in 1981 to 3.2% in 1983. However, high interest rates led directly to a deep recession in the early 1980s. A hard landing is effective at reducing inflation, but is nonetheless undesirable. As a result, central banks only attempt it when there are no other viable options. See also: Soft Landing.