Can price pressures return to normal in 2025 without a jump in unemployment? If they do, it could mean the “soft landing” investors and economists have been watching for.

For the past two years, the Federal Reserve has worked to tame inflation and cool down the economy without tipping it into a recession. While the central bank didn’t reach its annual goal of 2% inflation in 2024, it did keep a lid on unemployment, and the economy continued its growth. Some economists remain hopeful a soft landing could arrive in the new year.

“We continue to believe that we’re in this soft landing phase where U.S. economic growth remains resilient through 2025,” said Ashish Shah, chief investment officer of public investing at Goldman Sachs Asset Management.

Tracking the Chance of a Soft Landing

Economists look at inflation, the labor market, gross domestic product (GDP) and other economic indicators when watching for a soft landing.

According to calculations by Wells Fargo, the probability of a soft landing increased two percentage points from their last estimate to 42% when taking into account third-quarter data. Meanwhile, the probability of a recession decreased by the same amount, to 28%.

Their research also examined another possibility: stagflation, in which inflation rises along with the unemployment rate. The probability of that scenario was lower than the odds of a recession. 

Inflation Still Needs to Fall. What If It Doesn’t?

The Federal Reserve needs price pressures to slow in 2025 to achieve a soft landing. Some forecasts indicate that the risk of inflation from President-elect Donald Trump’s policies could exacerbate already stubborn inflation.

“Tariffs stand to throw some sand in the gears of economic growth next year and stymie inflation’s return to the Federal Reserve’s target,” said a Wells Fargo note from a group of analysts headed by Chief Economist Jay Bryson.

In addition to stubborn inflation, many economists think economic growth will remain strong, the Federal Reserve will keep interest rates elevated, and tariffs are likely to raise prices. That could create a situation in which there’s no landing at all.

“Instead of landing, the U.S. economy may simply refuel next year,” wrote Sal Guatieri, senior economist at BMO.

What About a Recession?

A soft landing would be a rarity for the Federal Reserve. Out of the last nine times the Fed raised rates, a recession ensued after eight, according to analysis by Piper Sandler. However, this time, a recession is not an outcome that most economists think is likely. 

“Our suite of recession models showed the lowest probability of recession at the three- and six-month horizons in more than two years,” wrote Matthew Martin, senior U.S. economist at Oxford Economics.

However, uncertainty around the economy, especially over the impact of tariffs, could mean that economic growth comes in lower than expected.

“A hard landing, or recession, is not our base case, but the risk of such a scenario would rise in the event of severe disruptions to global trade,” wrote Wells Fargo.