With the Fed about to cut, is the soft landing on track?

Did they pull it off? Or did they pull a fast one?

If the Federal Reserve cuts short-term interest rates next month, as Wall Street thinks is almost certain, it will mark an important milestone in the multi-year debate over whether the economy could experience a so-called soft landing.

The cognoscenti will remember that a recession — the “hard landing” scenario — was widely thought inevitable after the Fed began to jack up interest rates in 2022 to rein in post-pandemic inflation.

Others, including those in the Biden administration and the Federal Reserve, thought it just might be possible to slowly bring inflation back to earth, without crashing the economy. (A deep recession followed the last serious inflationary episode in the early 1980s.)

That magic combination — inflation coming down, without unemployment spiking — was the so-called soft-landing scenario, something few thought likely as the Fed delivered sharpest rise in interest rates since back in the early 1980s.

But, remarkably, with inflation down, the job market strong and the economy expanding, it looks like we may be on track to pulling it off.

But there’s only one purely scientific way to tell for sure.

In honor of the looming 50th anniversary of motorcycle daredevil Evel Knievel’s iconic attempt to ride a rocket-powered motorcycle over a gap in Idaho’s Snake River Canyon, we’ve uploaded key economic data series to Line Rider, the hypnotic old-school browser game.

The main character, a scarfed sled rider by the name of Bosh, is notoriously sensitive to sudden shifts in the trajectory of the lines he follows. In fact, so sensitive was Bosh to the actual numbers, that we were forced to do 1-year moving averages to give him some terrain he could actually traverse.

Even so, you’ll notice that for the most part Bosh’s ride over the last few years of American economic data, is a remarkably smooth downhill cruise that seems soft landing-y.

On the inflation front, the Consumer Price Index — which hit 9.1% June 2022 — has come more or less steadily dow to 2.9%. That looks pretty soft.

The job market, too, seems to have pulled off a return to earth. The jobless rate is up from 3.6% in June 2022 to 4.3% in July, which, while an unfriendly trend, is still well below the average of roughly 6% during the two decades preceding Covid. Initial claims for unemployment insurance — another closely watched job market metric — have also normalized from highly elevated Covid-era levels.

And the economy as a whole, as measured by GDP, has considerable pep at the moment, expanding at a healthy 3% annualized pace in the second quarter.

But you’ll notice, Bosh has a bit of trouble negotiating a pretty sharp slowdown that hit back in 2022.

Bosh might be onto something here. That divot reflects in part the fact that GDP actually did drop for two straight quarters in early 2022, which is often thought of as an unofficial definition for a recession. 

Nobody called it a recession at the time, largely because this negative lurch was driven by big swings in trade and inventories, while private sector demand was positive over this period. This was a time of normalization from super strong growth the economy generated in 2021, and all the while, the unemployment stayed remarkably low. 

Also, the National Bureau of Economic Research — which has taken on the role of official decider of what qualifies for R-word status — never declared that it was one. 

Still, at least by the super-sensitive standards of Line Rider, this landing might not have been quite as soft as it appears to us all now.