After upgrading to Zowe Explorer 2.8.1 the file settings.json is the folder .vscode.
Release : 4.0
Component: Zowe Explorer 2.8.1
This is a bug introduced in v2.8.1, and it has been resolved in v2.8.2 of Zowe Explorer.
Upgrade to the newest release.
If possible, please delete the .vscode folder in this workspace and then update Zowe Explorer to v2.8.2.