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.

BREAKING DOWN '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.

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