Jay Powell is keeping calm about the US economic outlook — perhaps overly so. The Federal Reserve opted to hold interest rates at its midweek meeting, though it adjusted its tone, citing moderating job gains and rising unemployment as signs of a cooling economy. That opens the door to cuts in September.
The problem is that weakening activity tends to feed off itself, meaning a cooling economy can quickly turn into a recessionary one. Has the Fed left it too late?
Since May, US economic data has indeed started to surprise to the downside, according to Citi’s Economic Surprise Index. But, signs of America’s slowdown had been emerging well before the Fed’s recent change in emphasis. Full-time household employment started weakening towards the end of 2023, credit card delinquencies rose above pre-pandemic levels around then, too.