The U.S. is at a critical juncture as inflation continues to moderate and the Federal Reserve considers the timing of future interest rate cuts, a “critical juncture” highlighted by Jack Kleinhenz, chief economist at the National Retail Federation.
“Today, we're waiting again,” Kleinhenz said, referring to 2017, when economists were waiting to see whether rapid economic growth and low unemployment would spark higher inflation. “Just like in 2017, the economy is strong and the labor market is still relatively tight, but this time we're waiting for inflation to fall. We're also waiting for the Federal Reserve to decide when to cut interest rates.”
Over the past two years, the Fed has had to balance the use of high interest rates to tame inflation with the risk of keeping rates high for too long slowing the economy and tipping it into recession.
“We are at a critical juncture as consumers, businesses, investors and others wait to learn how they will need to adjust their plans for future economic conditions,” Kleinhenz said. “Fortunately, monetary policy risks appear to be balanced at this point.”
Kleinhenz's views were published in the July edition of NRF's Monthly Economic Review. The report noted that year-over-year gross domestic product (GDP) growth slowed to 1.4% in the first quarter of this year from 3.4% in the fourth quarter of 2023, the slowest since spring 2022. The slowdown was driven primarily by a decline in consumer activity, an intentional consequence of high interest rates aimed at suppressing inflation without causing a recession.