Why the Federal Reserve risks the reduction of the curve with the high fears of stagnation
Solid data, which picks up the measurable performance of the economy but it has a backward appearance. Soft data usually depends on feelings and expectations, but they are often aspiration. The separation between the two at this moment is to create challenges and generate confusion of data between market participants and federal reserve officials.
Although families and companies are increasingly pessimistic, the economic slowdown they feared has not yet been achieved in difficult data. Dark feelings do not always translate into actual spending or investment decline.
The prior estimate of the first quarter showed a contraction in the real GDP growth rate. However, the estimation of the rate of growth of the first GDP was distorted significantly through the front loading as the importers raced to bring in foreign goods before the Trump tariff was completely entered. With inventory adjustments to the second quarter, some of the first quarter distortions will dissipate.
However, fears about whether to provide other consumer car purchases will be left and American families and companies are left with waste in the second quarter may tend to stagnate.
Since the RAM of the Trump administration of the tariff structure is badly explaining the financial markets and generating an increase in the uncertainty indicators in economic policy, the survey data indicates that American families have begun in a state of twins regarding the economic slowdown and the revival of inflationary pressures. It is clear that there is a sharp deterioration in soft data and solid data may start soon to catch up with the knees. Many ask if we were heading towards stagnation.
In the United States, the dating committee of the commercial session of the National Office for Economic Research is officially determined the start and end dates of stagnation and expansion. Contrary to the recurrent description of the media often as two consecutive quarterly or more passive GDP growth, the office defines the recession as “a significant decrease in economic activity that is spread through the economy and lasts more than a few months.”
When identifying periodic transformation points, the business course dating committee considers a wide range of measures, which includes quarterly data (such as GDP and GDP) in addition to monthly data (such as real personal income less than transportation, non -super salary functions, real personal consumption expenses and industrial production).
The feature of the above mentioned “stagnation” is that it is unlikely to be affected by the dodgers associated with the primary GDP estimates that may be finally resolved in future reviews. For example, it was initially reported at two consecutive quarterly domestic growth growth in the first half of 2022 that was changed to only a quarter of negative data reviews after data reviews.
However, the recession start statements can occur after a long period of contraction – the determination that the great recession that has already begun in December 2007 was made in December 2008.
On the other hand, market participants and policy makers seek an early reference to the points of transformation of the potential business cycle. In fact, the Holy Capture is to predict the macroeconomic economy to determine one or more stagnation indicators that will be infallible and able to provide a confirmed signal to establish an imminent economic contraction. Essentially, in the post -guardian, the Nazirons were often confused because many of the historically reliable indicators failed to present.
The inverted return curve, for example, has a good historical record of predicting American stagnation. The curve curve usually descends to the top because investors need to be compensated for the risk of lending over a longer period. However, before the imminent contraction, the return curve is deviated as investors believe that the monetary policy position is very restricted, and therefore it is likely to lead to an economic slowdown (which will eventually force the Federal Reserve Bank to reduce policy prices).
Despite its historical effectiveness, the post -birth curve coups have so far failed to properly predict the shrinkage. The return of the return between the return for 10 years and the critual draft crop for a period of 3 months, negative between October 2022 and December 2024 (also, the difference between the treasury bonds for two years and 10 years inverted for 25 months between July 2022 and August 2024). The return curve usually does not remove a few months before the recession. Therefore, this indicator may still be delivered, albeit late.
The so-called SAHM base represents a statistical regularity-the recession is usually running when the moving average increases for 3 months of the unemployment rate by 0.5 percent or more than the lowest level in the previous 12 months-which was first highlighted by the former economists in the Federal Reserve Claudia Sahm. This indicator also failed to present it in recent months – the SAHM base was operated after the issuance of labor market data in July 2024, however the American economy has been flexible so far (the unemployment rate was 4.2 percent in April 2025 at the same level in July 2024).
Despite solid address data, reviews indicate numbers of non -agricultural salary statements, wage pressure, and employment stops to the cooling work market. With the imbalance of traditional stagnation indicators, some indicate that online prediction markets like polymarket or Kalshi may provide a more accurate pulse. In addition, since Trump’s commercial war may generate bottlenecks from the display side, charging movement in the main ports can help determine future economic weaknesses.
In the face of the danger of recession, and the handicapped through the confusion of data and indications of the wrong recession, the Federal Reserve has taken the approach to waiting and seeing and wanted to risk going out “behind the curve.” Given the delays associated with monetary policy, the risk is that delay in federal reserve procedures may turn into a costly.
Vivekanand Jayakumar, PhD, Associate Professor of Economics at Tampa University.
