A Soft Landing is when a central bank, such as the United States Federal Reserve, tames inflation without triggering a recession.
Central banks seek to accomplish this by reducing the country’s money supply. Common strategies include raising reserve requirements, selling government bonds, and of course hiking interest rates.
Soft Landings can be elusive, though. Economists caution that the U.S. has successfully navigated only one soft landing since World War II. Regardless, many remain optimistic that the Federal Reserve can bring inflation to its 2% target and avoid causing a significant slowdown (recession) in 2024.
Central bankers used the term Transitory Inflation to explain a series of rapid price increases following the Covid-19 Pandemic. Inflation readings nearly doubled from 2.6% in March 2021 to 5% just two months later. Price increases eventually peaked at 9.1% in June 2022 before gradually decelerating.
The phrase implied that price increases were merely temporary and circumstantial.
Central bankers argued that supply chain disruptions, pent-up consumer demand from pandemic lockdowns, and available cash from stimulus actions were driving price increases. This theory posited that prices would quickly stabilize once producers and consumers readjusted.
Inflation ultimately proved stickier than the Federal Reserve anticipated. Economists point to government policy, job market disruptions, and corporate profit-taking as key culprits.
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It seems logical to conclude our business retirement plan series with guaranteed pension plans. These plans are unique because benefits are guaranteed and there are no annual contribution limits. Both features accommodate significant tax-deferred retirement savings for the right companies.
There are many different types of retirement plans. Each serves a specific set of goals and circumstances. This month’s article focuses on pension plans – a rare but worthy option for select businesses.
Certain pension plans promise a guaranteed income stream in retirement. These plans are funded entirely by the employer. Annual contributions are mandatory and driven by return assumptions, life expectancies, and turnover expectations. Contribution formulas typically favor longtime owners approaching retirement. The reasoning for this is fairly simple: aging owners have longer tenures and shorter retirement deadlines.
Previous articles tracked the evolution of retirement plans. Readers learned that there are now leaner, less expensive, and more flexible alternatives to guaranteed pension plans. Still, guaranteed pension plans can be attractive due to their unique contribution rules. Pension plans accommodate substantial annual contributions, allowing aging owners to reduce their tax bills and jumpstart retirement savings goals.
