The data is too strong! Another reason why the US economy may not "land"?

The U.S. economy seems to be heading in a direction that will make it difficult for Americans to get the long-awaited relief from high interest rates.

This situation is referred to as "no landing," where the economy continues to grow but in a way that reignites inflation and hinders the Federal Reserve's ability to cut interest rates. The lack of a decrease in borrowing costs will affect everyone: shoppers looking for lower prices, borrowers seeking more favorable rates, and homebuyers expecting more attractive mortgage terms.

A significant amount of data currently supports the notion that the U.S. economy may not be landing.

The latest data is the inflation report released on Thursday, which showed a 2.4% year-on-year increase in the CPI index in September, slightly slower than the previous month but higher than the expected 2.3%.

Prior to this was the September non-farm payroll report, which outperformed expectations. The U.S. added 254,000 jobs that month, bringing the unemployment rate down to 4.1%. Meanwhile, job growth in July and August was also revised upward.

These data indicate that after years of high interest rates, the U.S. economy has not shown substantial weakening, and the Federal Reserve may not need to significantly ease monetary policy as previously expected.

This week, Ed Yardeni, President of Yardeni Research, stated that he believes the Federal Reserve will not cut interest rates again for the remainder of the year. Yardeni said in a report to clients this week, "The strong job report in September and the upward revisions in July and August have killed the hard landing scenario."

As the "no landing scenario" is increasingly factored into bond market pricing, the yield on the 10-year U.S. Treasury bond broke 4% for the first time this week, impacting a key area of the economy—housing.

Since the Federal Reserve's significant rate cuts, 30-year mortgage rates have been rising rather than falling. The impact of further rate cuts on mortgage costs remains uncertain and will depend on how the bond market reacts to future data.

There is also a secondary risk—as the economy accelerates again, inflation may become a problem, solidifying the prospect of long-term high interest rates, which many had abandoned after the Federal Reserve's significant rate cuts last month. Megan Horneman, Chief Investment Officer at Verdence Capital Advisors, said on Monday, "Stronger job growth could lead to price increases, further complicating the Fed's job. We believe that the job report rules out the possibility of another 50 basis point rate cut at the November meeting."

Steven Blitz, Chief U.S. Economist at TS Lombard, expressed a similar view in a report on Tuesday. He said:

"The Fed won't cut the federal funds rate to 3%, but the ultimate rate in this cycle will end up too low and stay there for too long. Inflation will then rebound, and the Fed will raise rates again sooner than anyone expects. The biggest risk in the Fed's rate cuts and aggressive guidance, and the risk that the market hasn't priced in, is that the U.S. economy simply won't land." For American consumers who have been hoping for relief from high borrowing costs over the past two years, these are unpleasant news.

According to the Federal Reserve's data, the credit card loan interest rate for commercial banks rose to 21.7% in August, the highest rate recorded in at least the past 20 years. The 48-month new car loan rate in August also rose to 8.6%, the highest level in over a decade.

Data from the Philadelphia Fed shows that the volume of consumer mortgage loans issued by large banks also dropped significantly to $44 billion in the second quarter, far below the peak of $212 billion in 2021.

Mark Hamrick, senior economic analyst at Bankrate, said, "Due to the decline in benchmark interest rates, most potential borrowers have not felt the pressure of lower borrowing costs. For many Americans, financing and paying for large purchases remains a difficult task, whether it's housing, cars, or other household items that may be paid for using credit cards."