Investors are growing increasingly confident that the global economy can achieve a soft landing, in which inflation retreats without a large drawdown in economic activity.

In Bank of America's August Global Fund Manager Survey, released on Tuesday, 79% of respondents said a soft landing is the most likely outcome for the global economy in the next 12 months. This marked the highest percentage of respondents projecting such an outcome since May 2023.

For now, economists largely feel the economy can maintain this path. Recent data has shown signs of cooling in the labor market. But layoffs remain low, and a rapid rise in the unemployment rate has slowed. Meanwhile, inflation continues to fall toward the Fed's 2% target, while a fresh reading on August retail sales released Tuesday showed consumer spending is holding up.

"We still have significant consumer demand," Bank of America Securities senior US economist Stephen Juneau told Yahoo Finance. "We're not really seeing investment slow down sharply. So where's that kind of hard landing coming from? We just don't see it ... in the data right now."

He added, "We do see some normalization. We see some cooling. But that's a soft landing ... So we think that's very consistent with the data."

Bank of America's survey noted that confidence in a soft landing and interest rate cuts from the Federal Reserve drove an increase in global investor sentiment for the first time since June.

The survey's release comes one day before the Fed is expected to cut interest rates for the first time since 2020. A debate has raged on Wall Street over the past month about the extent to which the Fed will cut when it announces its next move at 2 p.m. ET on Wednesday. As of Tuesday morning, markets were pricing in a 67% chance the Fed cuts interest rates by 50 basis points, compared to 33% odds that Fed opts for a smaller 25 basis point cut, per the CME FedWatch Tool.

Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards

The best outcome for stocks? A 50 basis point cut that doesn't raise concerns about the probability of the Fed achieving a soft landing, Morgan Stanley chief investment officer Mike Wilson wrote in a note to clients on Sunday night.

This type of move from the Fed, he said, would be "purely an 'insurance cut' ahead of macro data that is assumed to stabilize."

"The bond market may be suggesting that a higher for longer interest rate stance may be a risk to the soft landing outcome at this point," Wilson wrote. "This doesn't mean the Fed can't get ahead of it, but they may need to move faster to keep investors' hopes alive."