What is a Goldilocks Economy?
How Does a Goldilocks Economy Work?
Market pundits look for ways to characterize the economic climate. A bullish economy, with steep growth in market values and low losses due to inflation, denotes strong economic growth, though it may lead to rising inflation. In contrast, a bearish economy is the opposite, with stagnant economic performance and inflation rates soaking up any gains. In either extreme, the Federal Reserve acts to either cool off or heat up the economy, primarily by raising or lowering the official interest rates. When there is a balance, i.e. not rapid or stagnant growth, but sustained growth and a reasonably low inflation rate, it is a comfortable zone for investors to find long term growth and attractive values in various asset classes. Therefore, pundits have labeled this balance between a bull economy and a bear economy, the Goldilocks Economy.
The name Goldilocks economy comes from children's story, The Three Bears, when Goldilocks proclaims that the porridge is "not too hot and not too cold…it is just right." Indeed, with sustained growth and a low inflation rate, the economic is usually considered "just right."