The prospect of a “soft landing” for the US economy, characterized by decreasing inflation, steady employment, and continued GDP growth, appears increasingly improbable. This optimistic scenario is challenged by persistent economic realities, particularly the strain on consumer spending, which constitutes a significant 69% of GDP. The crux of the issue lies in the widening gap between the cost of living, as measured by the Consumer Price Index (CPI), and real median household income. This disparity signifies a decline in purchasing power, leaving many households struggling to maintain their standard of living. The Federal Reserve’s own projections acknowledge the potential for inflation to resurge in 2025, further complicating the path to a soft landing.
This financial strain is evident in the escalating reliance on credit cards to bridge the income gap. Outstanding credit card and revolving credit debt reached a record high of nearly $1.09 trillion in early 2025, a substantial increase over previous years. This surge in borrowing, coupled with near-record-high average interest rates of around 22%, places an immense burden on households. The average credit card debt balance per household has reached alarming levels, exceeding $10,563, excluding the rapidly growing “Buy Now, Pay Later” market, which further exacerbates the debt burden. This reliance on credit is unsustainable in the long run and highlights the underlying weakness in consumer finances.
The labor market, while considered tight overall, presents a mixed picture. Hiring outside of healthcare and government remains anemic, with limited opportunities for career advancement and salary increases. This stagnation contributes to a sense of economic immobility, discouraging consumer spending and hindering economic growth. Furthermore, the housing market reflects this economic uncertainty. With mortgage rates significantly higher than in recent years, homeowners are reluctant to sell and move, effectively freezing a segment of the housing market that traditionally contributes to economic activity. This reluctance is understandable given the substantial increase in mortgage costs, making it financially prohibitive for many to consider relocating.
The elevated mortgage rates are unlikely to decline significantly in the near future, even if the Federal Reserve lowers the benchmark federal funds rate. This is because mortgage rates are primarily influenced by the yield on the 10-year Treasury bond, which reflects longer-term economic expectations. The current high yield on the 10-year Treasury translates to elevated mortgage rates, further discouraging home sales and purchases. This stagnation in the housing market has broader implications for the economy, dampening consumer confidence and limiting economic activity.
The labor market, while appearing robust at first glance, reveals underlying weakness upon closer examination. The number of individuals receiving continuing unemployment benefits has reached its highest level since late 2021, indicating persistent challenges in certain sectors. While overall wage growth currently outpaces inflation, this positive trend may not be sustainable if inflation resurges as projected. The combination of high consumer debt, stagnant wages in many sectors, and elevated housing costs creates a challenging economic environment.
The confluence of these factors – strained consumer finances, escalating debt, a sluggish labor market outside specific sectors, and an immobile housing market – paints a picture far removed from the envisioned soft landing. The economy faces significant headwinds, and the likelihood of achieving a smooth transition to sustainable growth with controlled inflation appears increasingly remote. The current economic trajectory suggests a bumpy road ahead, with potential for further economic challenges in the near future. The dream of a soft landing may remain elusive as these interconnected economic pressures persist. The combination of high consumer debt, stagnant wages, and a precarious housing market poses a significant threat to sustained economic growth.
