I don't follow this, seems like you could conclude the exact opposite. I.e. If no one is leaving they must be sufficiently challenged to grow & stay engaged.
That aside, if someone is outgrowing their role due to them being challenged, why can't they move into a new role rather than quit? A bigger red flag to me is turnover due to lack of opportunity for advancement.
Engineers are human beings, and work should be optimized to make human happy rather than human happiness optimized for work. IMO saying "hire less cautiously because not firing people is a bad sign" is not very respectful of people's life, as being fired can have very bad consequences on the impacted folks.
They don't have to be like this. I do much of my best work over 3-day HackDays that the company holds multiple times per year. Often I'll make a Proof-of-Concept during HackDays and incrementally improve it for production readiness to serve a specific overdue or upcoming need.
For the rest, it's a reasonable perspective. Even the "red flag" one about people not leaving is sensible. It's a flag and not a verdict. It's also possible that you hired well, set expectations correctly, and people are performing and growing.