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What does a soft landing even look like?
If it’s anything like other hard-won economic breakthroughs of the COVID era, even successes might not feel like wins.
There will be no celebratory ringing of the bell at the NYSE or a climactic moment when Fed Chair Powell calls the president to say, “We did it, Joe.”
If the Fed pulls off a soft landing, it might not even be clear that a victory has even happened. There will almost certainly be no "aha!" moment.
Contrary to the moon landing metaphor of an ambitious arrival, there won’t be finality or a visible moment of triumph. It will feel like an ongoing process, always on the verge of failing as new economic data floats in.
That’s the burden of the "data driven" approach, often cited by Powell. Similar to the way economists have pushed back and minimized their forecasts of a recession, the soft landing will take the shape of a big, elusive thing central bankers are chasing.
Because just around the corner there’s the possibility the next batch of data signals some deterioration a tick too far. Or data that confirms a little too much economic vitality.
The squishiness of a soft landing and the inability to recognize one is also tied to there being no hard definition of what it means.
A soft landing is generally understood as a successful tightening cycle where the Fed raises rates just enough to slow the economy and to cool inflation without slowing it too much to force a recession, as Sam Boocker and David Wessel of the Brookings Institution wrote in an essay last week.
Former Fed Vice Chair Alan Blinder counts “softish” landings when GDP declines by less than 1% or there is no NBER recession for at least a year after a Fed tightening cycle.
But even under this criteria, suppose inflation ticks back up late next year, or rising unemployment forces the Fed to move. Would acting on these aftershocks count against the soft landing, erasing it from the history books and forcing Powell to give back his Soft Landing trophy?
While experts have analyzed several episodes in recent US history of “softish” landings, the strongest example of a well-executed soft landing dates back to the Clinton era, in 1995.
In a move that now seems quaint, then-Fed Chair Alan Greenspan announced that the Federal Open Market Committee had changed its target federal funds rate, the first time the Fed had ever announced such a move. Greenspan’s Fed went on to raise the target federal funds rate seven times, in a preemptive effort to curb what central bankers saw as incipient inflation.
But Blinder, who was at the Fed then, notes in his history of soft and hard landings the likelihood of central bankers softly landing the economy depends on how the “plane” was flying before the tightening began.
During the “perfect soft landing” in the 1995 cycle, Greenspan didn’t actually bring inflation down, Blinder explains. He merely avoided the potential of rising inflation. That’s an important difference between the historical exemplar and the one Powell and the rest of us are grappling with. If Greenspan acted early, perhaps the strongest criticism lobbed at Powell is that he moved too late.
Even if the Fed manages to get lucky and stick a soft landing, there’s bound to be disagreement about the pain it took to get there. And as many journalists and other observers have pointed out, there’s often a disconnect between what policymakers are saying about abstract, aggregate data, and what Americans are feeling as they fill up their car with gas, check out at the grocery store, or try to buy a home.
There’s also the economy’s portrayal in the news media and on social media. How people talk about the economy no doubt influences how others think about it. And the same will be true of the soft landing as audiences consume, filter, and echo the content generated about it.
How will people know if a soft landing has arrived without historical perspective? They will have to believe it happened.
Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on Twitter @hshaban.
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