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. Soft Landing

    A term used to describe a rate of economic growth high enough ...
  4. Tiger Economy

    A nickname given to the economies of Southeast Asia. Some of ...
  5. Fox-Trot Economy

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

    An investor who believes that a particular security or market ...
Related Articles
  1.  investing vocabulary that goes along with Christmas
    Personal Finance

    The Frosty, Festive World Of Investing

  2. The national unemployment rate is defined as the percentage of unemployed workers in the total labor force.
    Economics

    The Unemployment Rate: Get Real

  3. thinkstock|istock
    Investing Basics

    Elves And Gnomes: Fairy Tale Investment ...

  4. Economics

    What You Should Know About Inflation

Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  3. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  4. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  5. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center