Lower interest rates may not be the salvation everyone has been hoping for.
In fact, more often than not, rate cuts not only don’t prevent recessions but lead to them.
“The market’s making a really big deal of upcoming Fed cuts that are expected to be kind of gradual,” researcher Lyn Alden told Business Insider. “At least for the first several cuts, I expect them to be relatively unimpactful for the U.S. economy.”
Economist David Rosenberg of Rosenberg Research told Business Insider that nine out of 20 recession indicators have been triggered thus far.
“Currently, 45% of the recession indicators we tracked have been triggered. Going back to 1999, that’s never happened without a recession occurring,” Rosenberg said. “The ‘indicator of indicators’ indicates recession.”
“Sometimes more is more, and this is a case in point. Looking at recession thresholds across different sectors of the economy makes it clear that something has been changing since mid-2024 — the long-anticipated slowdown may finally be arriving,” Rosenberg said.
Business Insider reports that Fed rate cuts may be too little, too late. Here’s the start of the story:
The US economy may very well avoid a recession in the coming months. But if it does, it probably won’t be because of interest rate cuts from the Federal Reserve.
As the unemployment rate rises and job openings and payroll data continue to soften, the Federal Reserve has decided it’s time to ease policy in the months ahead in hopes it can prevent the US economy from entering a downturn.
But history shows that effort may be futile, and that if a recession is coming, it’s likely already baked in.
Here’s a chart showing the federal funds rate over the last several decades. Recessionary periods, as identified by the National Bureau of Economic Research, are highlighted in gray. Often when the Fed has cut interest rates while the US economy has not yet entered a recession, a downturn still follows anyway. Other times, the economy was already in recession when the NBER looked back to mark when it began.