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The landing that never came

For much of the early 2020s, central bankers described the fight against inflation as an attempt to land an aircraft. A “soft landing” would bring price growth back under control without causing a recession. A “hard landing” would crush inflation by damaging the economy. The supposedly unserious third possibility was “no landing”: growth and inflation would both remain strong, leaving policymakers permanently aloft.

That third scenario now looks uncomfortably close to reality. The Federal Reserve’s preferred inflation measure never reached its 2% target after the pandemic surge. It bottomed at 2.3% in April 2025 and had risen to 4.1% by May 2026. Inflation also remained above target in Australia, Britain and the euro area. The latest energy shock, caused by war with Iran, made the problem worse, but it did not create it. American inflation had already stayed above 2% since early 2021.

Expectations have adjusted accordingly. A majority of fund managers surveyed by Bank of America expected the global economy to experience no landing over the following year. American consumers expected inflation to remain elevated both in the near term and over the long run. What central bankers once treated as a temporary and unacceptable outcome has started to look like the economic climate investors must live with.

Real claims beat fixed promises

The clearest investment lesson is that assets tied to real earnings have generally held up better than promises of fixed nominal payments. Major stockmarkets outside China performed reasonably well or spectacularly after inflation took off in 2021. Strong corporate profits and enthusiasm about artificial intelligence helped, but equities also offered a basic form of protection: companies can raise prices, so their revenues and earnings can rise with inflation.

Bonds did the opposite. Most bonds promise fixed coupon and principal payments, whose purchasing power shrinks as prices rise. A Bloomberg index of American Treasury bonds lost more than 20% of its value after adjusting for inflation over the period. Rising yields compounded the damage because they pushed down the market prices of bonds issued when rates were lower. If investors become more fearful of future inflation, they may demand still higher yields, repeating the same two-part loss.

Even traditional inflation hedges were not reliable in the short run. Gold fell by nearly a quarter from its January peak as investors worried that earlier demand for protection had created a bubble. In 2022 shares and commercial property also fell alongside bonds because higher interest rates reduced asset values. An asset can preserve purchasing power over many years while still delivering painful losses along the way.

A more volatile destination

Persistent inflation does more than erode money. It changes how investors and consumers behave, making markets less predictable. People rush toward supposed havens, then retreat when prices look excessive. Central-bank policy becomes harder to anticipate, and every new price shock raises questions about whether interest rates must climb again.

The no-landing economy is therefore not a stable compromise between growth and price control. Investors have learned to favor real income streams and to distrust fixed promises, but that adaptation does not remove the turbulence. The longer inflation remains above target, the more the flight itself becomes the destination.