When will we know if Jerome Powell’s soft landing happened?

So far, they’re still seeing shadows.  

Since March of last year, when surging inflation sent shivers through Wall Street, hitting a range unseen since the early 1980s, Federal Reserve Chairman Jerome Powell has aggressively raised interest rates, essentially gambling that the move would stop soaring prices without actually shrinking the economy and sending it into recession. That didn’t stop analysts and economists from creating an unholy din of dramatic and frightening recession forecasts, with some even comparing the coming downturn to the “stagflation” of the 1970s, a toxic combination of low economic growth and inflation. Still, the most widely predicted recession in history has yet to arrive. And that begs the questions: Are the groundhogs of economics still seeing their shadows or not? And has Powell maybe just pulled off the soft landing already?

Despite taking a ribbing from Wall Street, the Fed Chair has already had a lot of success in navigating the U.S. economy towards the ideal outcome. GDP has continued to grow despite increased borrowing costs for businesses and consumers; inflation has fallen sharply from its pandemic-era high of 9.1% in June 2022 to just 3.7% in August; and the unemployment rate has remained below 4%.

But around all the groundhog holes of economics, even the most bullish prognosticators aren’t willing to officially declare that a soft landing is here. Jay Hatfield, CEO of Infrastructure Capital Management, has argued for over a year that the economy will avoid a recession due to the resilience of the labor market and a rapid drop in pandemic-related inflationary pressures. But even he notes that the risk of another regional banking crisis, spillover from Europe’s recession into the U.S., or an overly aggressive Fed means it’s too soon to say the economy is safe.

“There are enough risks that I don’t think we should declare victory yet on our soft landing call,” he told Fortune. 

There are a few lone voices willing to say, in very hedged terms, that a soft landing may already have happened. Berkeley economics professor Brad Delong noted on his influential substack on Thursday that this year’s pattern of inflation “is exactly what we would see if the economy were, in fact, undergoing a successful soft landing.”

Most economists are reluctant to officially make the call, however. Here’s why, what they’re looking at, and why we could be stuck in Groundhog Day for some time to come, just like Bill Murray in the classic film of the same name.

When is it officially a soft landing?

Clearly, declaring a soft landing “victory” may be easier said than done. 

There are a few different common definitions for a U.S. recession. There’s the rule of thumb definition for a so-called “technical recession” that’s often used by investors—two quarters of negative GDP. Then there’s the judgment from the official arbiter of business cycles, the National Bureau of Economic Research (NBER), which defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.” The NBER even convenes a secretive group of economists to sit in a room and judge whether that criteria has been met, and the government then officially declares the economy is (or was) in recession.

But when it comes to a soft landing, there’s no specific, widely accepted definition. And that makes it a challenge to turn off the fasten seat belt sign and declare that the airplane that is the U.S. economy has pulled off a soft landing.

A soft landing implies that the economy has “come down” gently from a period of overheating and inflation, but isn’t contracting. So we should expect low inflation, positive economic growth, and a strong labor market. But how low does inflation have to go? How positive does economic growth have to be? And what unemployment or other labor market figures indicate significant strength to be classified as soft landing worthy?

Simply put, there are a lot of variables to consider when officially declaring a soft landing. But for Infrastructure Capital Management’s Hatfield and Yung-Yu Ma, chief investment officer at BMO Wealth Management, who has also been forecasting a soft landing since 2022, it’s less about hitting specific inflation or unemployment targets and more about maintaining the overall health of the economy. As long as inflation remains on a path back to the Fed’s 2% target, the unemployment rate doesn’t spike, and GDP growth stays positive, that’s a soft landing.

Pressed to give some more specific numbers, Ma said that he’d “ballpark” a few figures that he believes are the most important—and they all have to do with the labor market. “If over the next few quarters, we stayed at 4% or below for unemployment and if those initial unemployment claims stayed below 300,000, even if the economy slowed to a close to zero growth, I think that would be at least one good sign that we are actually having a soft landing,” he said.

Still, both Hatfield and Ma argued that it won’t officially be a soft landing until the Fed ends its interest rate hiking campaign with the economy still growing.

“I think you can’t declare victory until the Fed starts lowering interest rates,” Ma told Fortune, noting that sometime in the coming quarters, if inflation fades and unemployment remains low, “the soft landing could be happening in real time, but you couldn’t really put a stamp on it and say, ‘Look, we’ve achieved this,’ until then.”

Ma added that while he expects the economy to slow throughout the year, the labor market should remain strong enough to allow for a soft landing. But what about inflation? You can’t have a soft landing without stable consumer prices and the latest inflation reading wasn’t pretty—at least on the surface.

Inflation is still an issue?

Consumer prices increased 3.7% from a year ago last month, up from 3.2% in July, the Bureau of Labor Statistics reported Wednesday. But that was just what economists call “headline inflation,” another measure called “core inflation,” which excludes more volatile food and energy prices and is more closely monitored by the Fed, sank from 4.7% to 4.3% in a sign that underlying price pressures in the economy are abating. And more than half of the rise in headline inflation during August was caused by the roughly 10% jump in gasoline prices during the month amid OPEC’s oil production cuts.

Still, the latest inflation report has hardened the resolve of some of the most pessimistic economic forecasters. Former Treasury Secretary Lawrence Summers told Bloomberg Wednesday that “there is no sign” in the latest data that inflation is headed back to the Fed’s 2% target. 

“I think we’ve got, still, a difficult situation to manage,” he warned. “We’re all hoping for the best, but there’s no assurance at this point that that [soft landing] can be achieved.”

The Harvard University Professor argued—in a Groundhog Day echo of JPMorgan Chase CEO Jamie Dimon’s June 2022 forecast—that there are three possibilities for the U.S. economy and each has about a 1/3rd chance of becoming reality. First, there could be a soft landing, where inflation falls back to the Fed’s target without a surge in unemployment or a drop in GDP. Second, there could be a “no landing” scenario where inflation remains above 3% as the economy overheats. And third, there could be a hard landing, where the Fed’s interest rate hikes eventually spark a job-killing recession.

“The plane is still well above the landing spot. It’s still going very fast and whether it’s going to hit the ground hard, whether it’s going to overshoot, is very unclear from here,” Summers concluded, continuing the plane analogy for the economy.  

Citi economists, led by chief economist Nathan Sheets, also warned in a Tuesday note that aggressive interest rate hikes, historically, have led to recessions and they don’t see this time as an exception.

“Our view is that the laws of ‘economic gravity’ seen in previous cycles will ultimately reassert themselves, and the US economy will face recession during 2024,” they wrote. “Advancing the case for a soft landing requires a convincing narrative as to why ‘this time is different.’”

Is the economy still headed for a soft landing?

While it may be too soon to declare a soft landing victory, the resilience of the U.S. economy over the past few years has undoubtedly surprised many of the world’s best minds. Top investment banks, from Wells Fargo to Bank of America, have been forced to revise their recession forecasts in the wake of routinely bullish data throughout 2023. And both BMO’s Ma and Infrastructure Capital Management’s Hatfield still believe a soft landing is on the way.

Despite the Fed’s aggressive interest rate hikes, Hatfield said that he expects inflation to fade, the labor market to remain resilient, and GDP growth to stay between 1% to 2% for three key reasons. 

First, there’s a housing shortage that should keep unemployment in the construction industry from falling sharply. Jeffrey Mezger, CEO of one of the largest homebuilders in America, KB Home, told Fortune earlier this month that in a normal U.S. housing market there are typically six months worth of inventory available for sale—or roughly 2.6 million listings. Today, “it’s 500,000 homes. And of that 500,000 listed, a chunk of that isn’t even livable, it’s homes that would have to be acquired and torn down and rebuilt,” he explained.

This shortage of homes has coincided with a “strong demographic demand from the millennials and Gen Z,” according to Mezger, leaving homebuilders in a strong position to avoid layoffs even if the economy weakens.

Hatfield believes that homebuilders’ strength amid the housing inventory problems have helped—and will continue to help—keep the unemployment rate from spiking despite the Fed’s aggressive interest rate hikes, which typically wreak havoc on interest rate sensitive sectors like housing.

Second, Hatfield said that a car shortage is going to have a similar uplifting effect on employment in the manufacturing sector. Automakers have been plagued by years of supply chain issues, chip shortages, and more recently, work stoppages, which has led to a steady undersupply in the car market. Hatfield believes this shortage will keep manufacturers pumping out new vehicles even if interest rates rise.

“In modern financial history, we’ve never had a downturn where we didn’t have a sharp drop in investment where construction and industrial employment plummeted. And so since that hasn’t happened, and is not likely to happen because of the auto and home shortages, we think the chances of a recession are extraordinarily low,” he explained.

Finally, Hatfield argued that government stimulus in the form of infrastructure spending should help prevent a rise in unemployment as well. The Biden Administration passed the Infrastructure Investment and Jobs Act and the CHIPS and Science Act over the past few years in an effort to revitalize American infrastructure and manufacturing.

“You cannot ignore this government stimulus,” Hatfield said. “For the first time since probably the Great Depression the federal government is actually spending money on things that are counter cyclical.”

BMO’s Ma backed up Hatfield’s point of view, but in his mind, the main reason the economy has avoided a recession so far is that the “unprecedented” strength of the labor market due to years of labor shortages during the pandemic has enabled robust consumer spending. And consumer spending accounts for roughly 70% of U.S. GDP.

“The strength in the labor market has provided a very significant buffer against an economic slowdown from higher interest rates or from other pullbacks in the economy,” he said. “And at the end of the day, if people have jobs and they feel stable in their jobs, there will still be a pretty stable level of spending.”