Fed officials are looking over an even longer period. The Federal Open Market Committee, the central bank’s policy-setting group, is forecasting inflation hitting its 2 per cent target likely soon after 2025. But the contours of a moderate economy with stable prices would be pretty clear in the incoming data by later next year or the following if the projections prove prescient.

Because engineering such an outcome is time-consuming, the committee is estimating interest rates will be higher for longer. They’re anticipating a rate at 4.6 per cent at the end of next year, which is two points higher than the long-term trend and about a half-point higher than what markets are expecting.

The Fed raised rates last month to a range between 5.25 per cent and 5.5 per cent, the highest in two decades, and has signalled they may hike again this year.

Recent economic data has exceeded economists’ projections, with the 3.5 per cent unemployment rate among the lowest in decades, while a key measure of underlying inflation in July posted the smallest back-to-back increases in more than two years. While that’s supportive of a soft landing, it doesn’t necessarily rule out more overheating that leads to another leg of higher prices.

“I don’t think you can know whether there’s a soft landing without the benefit of hindsight,” said Neil Dutta, head of economics at Renaissance Macro Research, who sees a potential “inflationary boom” as oil prices are climbing and high home prices could feed into rents.

His concern has been echoed by policymakers who are keen to avoid repeating the mistake of the 1970s, when the Fed prematurely let up on its efforts to contain inflation, only to see price increases re-accelerate to double-digit levels later.

“The worst outcome for everyone, of course, would be not to deal with inflation now, not get it done,” Powell said in July.

‘The Fed seems to be well ahead of markets in recognising that the path to a soft landing is far from assured.’

Jonathan Millar, a senior economist at Barclays Capital

Because economic data often looks mixed at turning points and is later revised, and it’s not too unusual to have a quarter of negative growth during a long expansion, it will be impossible to determine whether the Fed has succeeded in real time.

After all, the US experienced two consecutive quarters of contraction in the first half of 2022 — what typically constitutes a recession in other economies.

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History provides a similar guide. Six months into what was later defined as the 2007-2009 recession, FOMC participants were predicting moderate growth in 2008. Then-chair Ben Bernanke initially dismissed concerns about the subprime mortgages’ broader effect on the economy.

“In most cycles, even at a turning point, we’re not really sure,” said Julia Coronado, president of MacroPolicy Perspectives LLC and a former Fed economist, who worries about the Fed overdoing rate hikes.

“Let’s have some patience. The only hope for a soft landing is that they stick to that patience.”