They require a careful balancing act between two forces that pull in opposite directions: slowing down the economy just enough to bring inflation back down to target, without going too far and triggering a recession. This balance is easier to get right in conducive macroeconomic conditions. This is reflected in the data. Almost all soft landings are associated with demand shocks, which suggests that supply shocks are more difficult to navigate. They are also characterised by longer holding periods, of around nine months on average, a slower pace of rate cuts, of 29 basis points per month, and higher real interest rates at the time of the first cut compared to the episodes of hard landings. This suggests that sharp policy adjustments are less likely to be successful than cycles in which adjustments are made more gradually. Soft landings typically occur when the inflation peak is lower, particularly in the case of core inflation (headline inflation excluding volatile components such as food and energy). Other factors include unemployment rising only modestly, stock market losses remaining limited, and inflation expectations staying well anchored (Chart 3). Hard landings, on the other hand, often go hand in hand with a financial crisis, a prolonged slowdown in lending to firms and households, and high unemployment, even when rates are cut aggressively. These cuts also typically produce no meaningful difference in inflation outcomes. Chart 3 Key macroeconomic indicators across successful easing cycles (year-on-year percentage change for inflation, growth and credit; percent for unemployment; year-on-year percentage change in the 3-month moving average for equity prices) Sources: ECB staff calculations Latest observation: April 2024 Notes: The charts show the evolution of key macroeconomic variables over hard and soft landing episodes, as well as for the current ECB rate cycle of 2022-2004 (�EA�). Soft landings are defined as episodes that saw inflation return to target (successful episode) without a recession within 2 years. Hard landings are episodes that saw either: (i) an inflation undershoot or, (ii) inflation successfully returning to target but with a recession or a financial crisis occurring within 2 years. The green lines indicate the current cycle of the ECB. The shaded areas show the min/max range for each variable. The horizontal axis shows the months since the start of the easing cycle (t=0 at first rate cut). The behaviour of inflation expectations is another distinguishing factor between hard and soft landings. If central banks are credible, then inflation expectations should remain well anchored throughout the monetary policy cycle. It turns out that, in hard landings, long-term inflation expectations decline between the start of the tightening phase and the start of the easing phase. This likely reflects the fact that central banks are often forced into easing by adverse shocks or a rapidly slowing economy. This is not the case for soft landings, where expectations tend to remain remarkably stable throughout the cycle. [ 4 ]