The Federal Reserve finds itself walking a narrowing tightrope — balancing between inflation that refuses to cool and a labor market that’s quietly losing steam. For all the talk of a “soft landing,” the signs are starting to flicker red.
Factory activity contracted for the eighth straight month in October, according to the Institute for Supply Management, and manufacturers continue to shed workers. Unemployment is edging up, hiring has slowed, yet inflation remains stubborn at around 3% — still above the Fed’s 2% target.
And yet, the American consumer continues to spend. Visa’s data shows that cardholders are still swiping — a paradox that has economists scratching their heads. If the labor market is softening, why does spending remain strong? Some point to savings cushions and rising credit balances. Others warn this may simply be the calm before the pullback.
Inside the Fed, the debate is growing louder. The newest member, Adrian Miran, has cautioned that today’s restrictive policy could materialize into a sharp downturn. Miran’s remarks on the “neutral rate” — the interest rate that neither stimulates nor slows the economy — suggest a nuanced view: a lower neutral rate near 2.5% doesn’t necessarily imply lower potential growth. If the U.S. can produce more with the same workforce, productivity gains could justify a higher long-run rate.
But for now, uncertainty reigns. During the October 29 FOMC meeting, two of the twelve voting members dissented on the decision to cut rates by 0.25 percentage points to 3.75–4%. One argued for a larger cut to counter weakening conditions; another preferred to hold steady. The split underscored just how divided the Fed remains on the path ahead.
Fed Chair Jerome Powell struck a cautious tone: “A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it.” Translation: the Fed isn’t convinced the danger has passed — or that it’s safe to ease up.
So, are we bracing for a recession — or just groping in the dark under a government data blackout? The truth may be somewhere in between. Economic data often moves like headlights in the fog: limited, delayed, and prone to illusions. What looks like stability today could turn out to be a mirage.
For now, all eyes are on December. The Fed isn’t on a preset course, but the road ahead is looking increasingly uneven — and those recession warning signs may be closer than they appear.
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