What comes after a soft landing?

Economists daydream, just like the rest of us. And right now, floating around in the thought bubble above some of their heads, there’s a picture of the elusive — yet so close — soft landing.

“Well, you know, it’s one of those brief, shining moments when everything is aligned,” said Mark Zandi, chief economist at Moody’s Analytics.

Lately, it seems like people have been a bit more optimistic about the economy and that the Federal Reserve may actually pull off a soft landing, taming inflation without tipping the economy into a recession. 

So, let’s say that soft landing happens. Then what?

According to Zandi, the soft landing will look something like this: The Federal Reserve gets inflation down to 2%, unemployment hangs around 3% to 4% and gross domestic product keeps growing, but not too fast — also around 2%.

“You know, rarely is the economy in that kinda sweet spot — very, very rare,” he said. “And very rare that it stays there because, of course, stuff happens.”

If the Fed lands the economy softly, it wants to keep stuff from happening. Instead, indicators need to tread water, maintain the status quo. The economy can’t start slipping because the landing wouldn’t be so soft, and it can’t suddenly grow because inflation would likely tick up again. 

That might not sound like the Champagne-fueled party we’ve been waiting for.

“Having just a slow-growth period for a while is not great,” said Anil Kashyap, an economist at the University of Chicago. “But if that’s what it takes to get the inflation contained, I think that’s a trade [the Fed] would probably make.”

Meanwhile, interest rates, currently high, would go down. But borrowing won’t be nearly as cheap as it was a few years ago. 

That’s actually sort of a best-case scenario. A worse scenario is the Fed declaring victory too soon.

“They say we see inflation coming down, we see inflation easing off a bit. All of a sudden, animal spirits get wild. You see financial markets get really, really exuberant, you see a lot of temporary euphoria,” said Kashyap — only for inflation to pick right back up again.

But let’s go back to our happy place, the soft landing. How long until the economy can take off again? There are only a couple of ways to do that, according to Betsey Stevenson, an economist at the University of Michigan.

“Economic growth that’s consistent with price stability is economic growth that’s fueled by productivity increases,” she said.

That can be accomplished by finding more workers through something like immigration reform or increasing output through sudden advances in technology.

“We’ve got these new breakthroughs like [artificial intelligence] and we’re going to see what happens, how much that allows us to produce more with less,” Stevenson said. “That would fuel economic growth.”

As exciting as all that sounds, we need to remember that the soft landing — if it happens — is still a ways away.

“We’ve made a lot of progress from where we were a year ago, but that last mile, getting inflation all the way down to that target, is going to take a bit more time,” Zandi said.

So the Fed will have to keep trying to fine-tune the economy, one interest rate shift at a time.