Sweet Spot

AAA

DEFINITION of 'Sweet Spot'

The point at which an indicator or policy provides the optimal balance of costs and benefits. This term is often used to refer to situations where economic data, such as interest rates or employment numbers, are currently or expected to lead to the best overall economic situation.

INVESTOPEDIA EXPLAINS 'Sweet Spot'

For example, the current level of interest rates can be considered to be in a sweet spot if they keep inflationary pressures in check, but don't do so at the cost of the overall market. Similarly, when the current level of employment in an economy is enough to stimulate economic growth without leading to higher levels of inflation through wage pressures, this could also be referred to as a sweet spot.

RELATED TERMS
  1. Federal Funds Rate

    The interest rate at which a depository institution lends funds ...
  2. Ben Bernanke

    The chairman of the board of governors of the U.S. Federal Reserve. ...
  3. Prime Rate

    The interest rate that commercial banks charge their most credit-worthy ...
  4. Fed Model

    A model thought to be used by the Federal Reserve that hypothesizes ...
  5. Federal Reserve Board - FRB

    The governing body of the Federal Reserve System. The seven members ...
  6. Federal Reserve System - FRS

    The central bank of the United States. The Fed, as it is commonly ...
RELATED FAQS
  1. How can I use a regression to see the correlation between prices and interest rates?

    In statistics, regression analysis is a widely used technique to uncover relationships among variables and determine whether ... Read Full Answer >>
  2. What are some of the limitations of run rates?

    Some limitations of a reliance on run rates include the occurrence of one-time sales, limitations on contracts, seasonality, ... Read Full Answer >>
  3. What are some real-life examples of the 80-20 rule (Pareto Principle) in practice?

    There are a number of practical applications for the 80-20 rule in diverse areas such as the distribution of wealth in economics, ... Read Full Answer >>
  4. How do I calculate production costs in Excel?

    It is impossible for a single method of calculating production costs to work for all businesses, much less for a Microsoft ... Read Full Answer >>
  5. Which pro forma financial statements should always be included in a business plan?

    When deciding which pro forma financial statements should be included in a business plan, it is important to always include ... Read Full Answer >>
  6. Can the Efficient Market Hypothesis explain economic bubbles?

    The efficient market hypothesis (EMH) cannot explain economic bubbles because, strictly speaking, the EMH would argue that ... Read Full Answer >>
Related Articles
  1. Economics

    The Federal Reserve

    Few organizations can move the market like the Federal Reserve. As an investor, it's important to understand exactly what the Fed does and how it influences the economy.
  2. Forex Education

    Get To Know The Major Central Banks

    The policies of these banks affect the currency market like nothing else. See what makes them tick.
  3. Investing Basics

    Interest Rates And Your Bond Investments

    By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it.
  4. Economics

    How Iran Impacts The Price and Supply of Oil

    If Congress approves the deal, Iranian oil will be widely available for the first time in years. When Iranian oil begins to flood the market, it will influence the world oil supply and oil prices ...
  5. Economics

    What to Expect from Russia's Oil-Dependent Economy

    The fate of Russia's economy is for the most part determined by the price of oil. Here's how it's likely to play out.
  6. Entrepreneurship

    How a Higher Minimum Wage Would Impact the Economy

    Doubling pay for hourly workers could have several knock-on effects to the economy. Here's a brief look at a big issue.
  7. Stock Analysis

    China: Why Big Investors are Turning Into Bears

    More hedge fund managers and economists are beginning to transition from bull to bear when it comes to China. Here's why.
  8. Economics

    Oil Companies Near Bankruptcy

    With the resumed uncertainty in Europe surrounding Greece and the sudden bear market gripping China, the price of oil has once again slid under $50. While low oil prices may be welcomed by drivers ...
  9. Professionals

    Will Consumer Spending Save 2015?

    Consumer spending is considered an important number (and it is), but a savvy investor will always look at "why" rather than just "what." You should too.
  10. Stock Analysis

    Where Will the Shanghai Composite Be in a Year?

    The Shanghai Composite Index is on fire. But where will it be a year from now?

You May Also Like

Hot Definitions
  1. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  2. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  3. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  4. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  5. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  6. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!