The sirocco, a wind that blows from the Sahara and across the Mediterranean, delivers, in turn, dry and then humid air that can reach hurricane speeds. It’s said to cause people to become irritable, aggravate health problems, and abrade mechanical devices.
There’s an economic sirocco coming in from previous conditions, skimming over trade war uncertainty, pulling up additional heat from volatile labor markets, lifting vapors of concern about the national debt, getting a boost from growing international distrust over U.S. actions and intentions, and blossoming into a hot and damp atmosphere. The chances of a recession continue to grow.
What The Fed Said
There was no surprise in the Federal Reserve’s Federal Open Market Committee decision to keep the short-term benchmark federal funds rate in the 4.25% to 4.50% range. What Fed watchers kept their eyes and ears on wasn’t the number, but rather the FOMC statement and Chair Jerome Powell’s remarks after the two-day meeting closed on Wednesday.
The FOMC statement was mixed. It mentioned that what made the country’s gross domestic product shrink in the first quarter of 2025 was a surge of imports as companies brought in goods before tariffs hit their new high values. Otherwise, the economy was “still in a solid position,” as unemployment also remained low.
However, Powell’s remarks explicitly addressed some negative signs. Consumer confidence has fallen in multiple surveys. Inflation measured 2.3% over the 12 months ending in March. Excluding the volatile food and energy categories, it was 2.6% year-over-year. As the target inflation is 2%, the economic position has remained more tenuous than the Fed has wanted.
Powell also said that if large tariff increases remain, “they are likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment.” It could be that an inflation result could be a one-time boost, or it could be more persistent. “Avoiding that outcome will depend on the size of the tariff effects, on how long it takes for them to pass through fully into prices, and, ultimately, on keeping longer-term inflation expectations well anchored,” he added.
The Fed’s responsibility is to tend its dual mandate of stable prices and maximum sustainable employment. That may result in a “challenging scenario” of the two being “in tension,” as Powell said. At that point, they might have to juggle between the two, suggesting that either prices would rise faster than intended or unemployment would begin increasing. The situation may not occur, but it is something Powell and the Fed are now mentioning as a potential challenge.
Uncertain Economic Signs
Oxford Economics, in an emailed statement on Wednesday, thought the Fed would most likely wait to react to data as it becomes available and to situations as they develop, which might mean no interest rate cuts until December. This would follow how the central bank has reacted in the past.
However, the organization waited a good year while interest rates were climbing before taking action, and those measures did not seem to deter inflation growth. The rise in prices was split between pandemic-induced supply chain disruptions and large corporations using the conditions to increase pricing and, as a result, sharply increase profits since the pandemic. Sometimes, no action is better than some, but then, ill-timed action is frequently unfortunate.
As Oxford Economics wrote, ongoing strength of the labor market has been good news. How long will it last? The impact of federal job cuts has yet to be felt in jobs reports; April’s numbers showed only a 9,000-position drop. When the report came out in early May, ManpowerGroup called it a “welcome surprise,” but one with “cracks in the foundation” that showed strain. The company’s data suggested an 11% year-over-year reduction in job openings as companies “take a more strategic and deliberate approach” to hiring, incorporating a “wait and watch” approach.
A new report from the Bureau of Labor Statistics shows a 0.8% decrease of productivity in Q1 2025 while unit labor costs were up 5.7%, both on an annualized basis. The drop is just one month’s number, but if the fall continues, it could preface an economic slowdown.
Year-over-year gas prices are dropping, which may sound good until you remember that it means energy markets think global economies will slow. That could mean a recession. The Trump administration wants sharp cuts in housing assistance for lower- and low-income households. Congress might go along or not; presidential preferences never pass through into budgets without modification or disagreements. But even the presidential budget “would remain essentially unchanged at $1.6 trillion,” wrote Veronique de Rugy in the libertarian Reason.
There are too many unknowns, too much complexity in the economy, too little international faith in the U.S. economy and global position. Too much could go wrong, and that alone is maybe the largest worrying sign.
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