Quora Answer: Can the No-Landing Economy Actually Last?

The following is my answer to a Quora question: “Can a no landing economy survive increased inflationary risks for a meaningfully prolonged period, while just continuing to grind along indeterminably?”

The aviation metaphor that economists reached for in 2023 to describe a scenario nobody had previously named deserves explanation before it deserves scrutiny.

A soft landing is the conventional central banking objective: raise rates sufficiently to suppress inflation, slow the economy enough to reduce price pressure, but not so much that you tip it into recession.  Growth continues.  Inflation falls.  The plane touches down smoothly.

A hard landing is the failure mode: rate rises overshoot, credit tightens too severely, unemployment rises sharply, and the economy contracts into recession.  The plane hits the runway hard.

A no landing is something different entirely — and considerably more awkward to model.  The economy simply refuses to slow down despite rate increases.  Inflation remains elevated.  Growth continues.  The plane never descends.  It keeps flying, burning fuel at an unsustainable rate, while the passengers argue about whether this is a feature or a problem.

What a No-Landing Economy Actually Looks Like

The United States in 2023 and 2024 provided the clearest recent example.  The Federal Reserve raised the Federal Funds Rate from near zero in March 2022 to 5.25% to 5.50% by July 2023 — the fastest tightening cycle in four decades.  Conventional monetary transmission theory held that this would cool demand, reduce inflation, and slow growth to below-trend rates within twelve to eighteen months.  It did not.  US GDP grew at 3.1% in 2023 and 2.7% in 2024 — above trend.  Unemployment remained below 4% throughout.  Core PCE inflation — the Federal Reserve’s preferred measure — remained stubbornly above 2.5% despite the rate increases.  The economy absorbed the tightening and continued growing.

This was the no-landing scenario in practice.  The plane kept flying.  The pilots — Jerome Hayden Powell and the Federal Open Market Committee — found themselves in the novel position of having raised rates to a twenty-two-year high and achieved considerably less demand destruction than historical relationships would have predicted.

Why the No-Landing Scenario Exists

Several structural factors produced this outcome simultaneously, and understanding them is necessary for assessing whether the scenario can persist.

The first is the fiscal dominance dimension.  The US government ran a fiscal deficit of approximately 6.3% of GDP in fiscal year 2023 and 6.4% in 2024 — extraordinarily large deficits for an economy not in recession.  Fiscal stimulus of this magnitude partially offsets monetary tightening.  The Federal Reserve is simultaneously pulling the credit brake while the Treasury is pushing the fiscal accelerator.  The net effect is slower deceleration than monetary policy alone would produce.

The second is the fixed-rate mortgage lock-in effect.  Approximately 90% of US mortgages are fixed-rate, with the majority locked in at rates below 4% during the pandemic refinancing boom.  Rising rates did not increase the monthly payments of existing homeowners — they simply made new purchases more expensive, which reduced transaction volumes without creating the debt service stress that variable-rate mortgage systems would have produced.  The consumption impact of the rate rises was therefore considerably smaller than historical relationships — calibrated in a world of more variable-rate debt — would have predicted.

The third is the excess savings accumulated during COVID.  US households accumulated approximately US$2.1 trillion in excess savings between 2020 and 2021 through a combination of stimulus payments, reduced consumption opportunities, and elevated labour income.  The drawdown of these savings sustained consumer spending through the rate tightening cycle, cushioning the demand impact that rate rises were designed to produce.

The fourth is AI-driven productivity optimism.  Capital expenditure on AI infrastructure — driven by Microsoft, Google, Amazon, and Meta — sustained investment spending at levels that partially offset the housing and commercial real estate investment decline that higher rates produced elsewhere.  The technology sector’s conviction that AI-driven productivity growth justified continued investment regardless of the rate environment created a specific carve-out from the standard rate sensitivity model.

Can It Last?

The honest answer is for longer than economists initially expected, but not indefinitely.  The structural supports for the no-landing scenario are eroding at different rates.  The excess savings buffer has been substantially depleted.  The Federal Reserve Bank of San Francisco estimated that excess savings fell to approximately zero for the bottom 80% of the income distribution by mid-2024.  The consumption that excess savings sustained is increasingly being funded by credit card debt — which crossed US$1.1 trillion in 2024 — at average interest rates above 20%.  Credit card delinquency rates reached their highest levels since 2012 in 2024.  The consumer who was spending savings is now spending borrowed money at a rate that historically precedes credit stress.

The fiscal position is not sustainable at the current trajectory.  The US Treasury is paying approximately US$1.1 trillion annually in interest on the national debt — roughly 3.9% of GDP directed entirely toward servicing existing obligations rather than productive expenditure.  The Congressional Budget Office projects the debt-to-GDP ratio reaching 122% by 2034.  The fiscal stimulus that has been partially offsetting monetary tightening is itself an inflation input — government spending that exceeds revenue is definitionally expansionary.  The market’s eventual reassessment of US sovereign credit risk — Moody’s downgrade from AAA to Aa1 in May 2025 was the first signal — will raise the government’s borrowing cost, which tightens the fiscal space available for continued stimulus.

The fixed-rate mortgage lock-in effect is finite.  As time passes, existing fixed-rate mortgages mature, are refinanced at higher rates following sale transactions, or are affected by rate resets on adjustable-rate commercial real estate debt.  The commercial real estate sector — which is predominantly variable-rate — has already experienced the rate transmission that residential has deferred.  Office valuations have fallen 30% to 50% from the peak in major US markets.  Regional banks with concentrated commercial real estate exposure are carrying unrealised losses that will crystallise over the next refinancing cycle.

The Historical Parallel That Nobody Wants to Invoke

The 1970s are the relevant comparison — and the comparison is not flattering.  The United States experienced two distinct inflationary episodes in the 1970s, separated by a period in which inflation appeared to be declining and the Federal Reserve — under Chairman Arthur Frank Burns — eased prematurely.  The premature easing allowed inflation to re-accelerate into the second, more severe episode of 1979 to 1981, which required Federal Reserve Chairman Paul Adolph Volcker to raise the Federal Funds Rate to 20% and deliberately induce a severe recession to break inflationary expectations.

The no-landing scenario of the 1970s — the economy continuing to grow while inflation remained elevated — was not a stable equilibrium.  It was the transitional phase between the first inflationary episode and the conditions that made the second one worse.  Each period of apparent stability without decisive policy tightening allowed inflationary expectations to become more entrenched, which required more aggressive eventual action to dislodge.

The parallel to 2025 and 2026 is visible.  The Federal Reserve cut rates three times in the second half of 2024 — reducing the Federal Funds Rate from 5.25% to 5.50%, down to 4.25% to 4.50% — before US inflation began re-accelerating in early 2025.  The Strait of Hormuz disruption from February 2026 onward has produced an energy price shock with direct inflationary consequences.  The market is now pricing a Fed rate increase by year-end 2026 — the first rate increase after a cutting cycle since the 1970s policy reversals that preceded the Volcker shock.

This is not a prediction that 2026 is 1979.  The structural differences between the two periods are real and meaningful.  US households do not face the same energy dependence.  Central bank communication is more sophisticated.  Financial markets are deeper and more efficient.  But the general dynamic — inflation that refuses to fall to target, a central bank that eased prematurely, and a no-landing economy that is now re-accelerating into a second inflationary impulse — has recognisable historical features.

The Inflationary Risks That Compound the Problem

The no-landing economy’s vulnerability to inflationary risks is structural rather than incidental.  An economy operating at above-trend growth and below-trend unemployment has limited spare capacity to absorb supply shocks without passing them through to prices.  The Strait of Hormuz disruption is the current example.  Global oil supply running through the strait has fallen from approximately 20 million barrels per day to fewer than 2 million — the International Energy Agency has classified it as the largest supply disruption in recorded history.  An economy with significant spare capacity absorbs an energy price shock by compressing margins in other sectors and accepting a temporary reduction in real output.  An economy already at capacity must pass the shock directly into prices.

Tariff escalation provides a second simultaneous inflationary input.  The Trump administration’s tariff programme — targeting Chinese imports at 145%, with significant tariffs on other major trading partners — is a direct supply-side cost increase passed through to consumer prices.  Goldman Sachs estimated tariffs would add approximately 1 to 1.5 percentage points to US inflation in 2025.  The no-landing economy absorbs this with difficulty because the consumption demand that characterises its above-trend growth amplifies rather than moderates the price-level impact.

Can It Grind Along Indeterminately?

No.  An economy is not a machine that can run indefinitely in a suboptimal state without the state resolving either upward into genuine stability or downward into crisis.  The no-landing scenario resolves in one of three directions.

The first is a successful soft landing delayed — inflation eventually falls toward the target as the lagged effects of monetary tightening accumulate, the excess savings buffer depletes, credit conditions tighten, and growth moderates to trend without tipping into recession.  This was the Federal Reserve’s preferred narrative in 2024.  The re-acceleration of inflation in 2025 has made it less plausible.

The second is a hard landing induced by policy error in one of two forms: the central bank tightens too aggressively in response to re-accelerating inflation and induces a recession, or the fiscal position deteriorates to the point where sovereign credit risk reprices, and the cost of government borrowing rises sharply enough to produce financial stability stress.  This is the 1979 to 1981 scenario.  It resolves inflation but at a high economic cost.

The third is stagflation — the worst of both worlds.  Growth slows, but inflation remains elevated because the inflationary inputs are supply-side rather than demand-side.  An energy price shock and a tariff-induced supply chain disruption both raise prices without stimulating growth.  The central bank faces the impossible choice between tightening to address inflation — which further depresses growth — and easing to support growth — which further elevates inflation.  The 1970s produced this outcome.  The combination of energy shock and tariff-induced supply disruption in 2025 and 2026 contains the ingredients for it.

None of these resolutions is comfortable.  None of them is the no-landing scenario continuing indefinitely.  The no-landing economy is a transitional state, not a stable equilibrium.  The plane can fly above the runway for longer than expected.  It cannot fly above the runway forever.  The fuel consumption of an economy operating at above-trend growth with above-target inflation is the depletion of the structural buffers — excess savings, fiscal space, fixed-rate mortgage insulation — that made the no-landing scenario possible in the first place.

When those buffers are exhausted, the descent begins.  The question is whether the pilots manage it or the fuel runs out first.  Based on the current trajectory, the answer is not yet clear.  The historical parallel suggests it rarely ends gracefully.  In my opinion, we are in for a rough landing for the US economy.

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Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code