Goldilocks Economy

AAA

DEFINITION of 'Goldilocks Economy'

An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. There are no exact markers of a Goldilocks economy, but it is characterized by a low unemployment rate, increasing asset prices (stocks, real estate, etc.), low interest rates, brisk but steady GDP growth and low inflation.

INVESTOPEDIA EXPLAINS 'Goldilocks Economy'

Regulators use fiscal and monetary policy tools to try to create an economy with these conditions. Economic conditions abroad, and regulators’ reactions to them, also influence whether an economy can achieve a Goldilocks state. This state is ideal for investing, because as companies grow, stocks perform well, and in the absence of inflation, bonds will hold their value. If GDP grows too quickly and inflation creeps up too quickly, however, the economy can overheat and a bust can result.

While business cycles vary in intensity and duration, the U.S. economy typically goes through five phases as part of the business cycle: growth/expansion, peak, recession/contraction, trough and recovery. A Goldilocks economy may occur during the recovery and/or growth phases. The U.S. economy of the mid- to late-1990s was considered a Goldilocks economy because it was "not too hot, not too cold, but just right." This term has also been used to describe the economy as it recovered from the tech bubble burst in 2003–2004 and as it expanded in 2013 after the housing bubble burst in 2008. Because we have business cycles, a Goldilocks economy should be considered a temporary state.

RELATED TERMS
  1. Tortoise Economy

    An economy that is growing slowly or not at all over time. The ...
  2. Centrally Planned Economy

    An economic system in which economic decisions are made by the ...
  3. Tiger Economy

    A nickname given to the economies of Southeast Asia. Some of ...
  4. Bear

    An investor who believes that a particular security or market ...
  5. Fox-Trot Economy

    A pattern of economic growth where periods of rapid expansion ...
  6. Bear Market

    A market condition in which the prices of securities are falling, ...
Related Articles
  1. Personal Finance

    The Frosty, Festive World Of Investing

    From Santa Claus rallies to evergreen loans, Wall Street can be a veritable winter wonderland for investors.
  2. Economics

    The Unemployment Rate: Get Real

    Depending on how it's measured, the unemployment rate is open to interpretation. Learn how to find the real rate.
  3. Investing Basics

    Elves And Gnomes: Fairy Tale Investment Terms

    What do elves have to do with investing? Meet the fairytale creatures running around Wall Street.
  4. Economics

    What You Should Know About Inflation

    Find out how this figure relates to your investment portfolio.
  5. Investing Basics

    What Investors Should Know About Interest Rates

    Understanding interest rates helps you answer the fundamental question of where to put your money.
  6. Bonds & Fixed Income

    The Fed's New Tools For Manipulating The Economy

    The economy can be volatile when left to its own devices. Find out how the Fed smoothes things out.
  7. Active Trading Fundamentals

    Recession: What Does It Mean To Investors?

    Understanding the business cycle and your own investment style can help you cope with an economic decline.
  8. Active Trading Fundamentals

    Digging Deeper Into Bull And Bear Markets

    Discover why it's important to know the characteristics of the two types of market conditions.
  9. Active Trading

    Market Cycles: The Key To Maximum Returns

    You need to understand the various phases of the market cycle to avoid bubbles and make the best investments.
  10. Active Trading Fundamentals

    Surviving Bear Country

    Stay calm, play dead and keep your eyes open for attractive valuations.

You May Also Like

Hot Definitions
  1. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  2. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  3. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  4. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  5. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  6. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
Trading Center