Consumers Power US Economy Toward a Soft Landing

If there’s one truism about the US economy these last few years, it’s that the consumer—perhaps America’s biggest economic engine—keeps on spending. As the pandemic recession gave way to a labor market roaring back to life, and then half-century records, it’s been Americans clicking “purchase” or swiping credit cards that’s kept growth solid. Now, with a Federal Reserve interest-rate cut in the cards for next month, recent economic data shows inflation continued to slow in July and spending stayed robust despite higher borrowing costs—all the makings of Fed Chair Jerome Powell’s soft landing. Still (and there’s always a still), income growth is much more sluggish, the job market softer and the savings rate slower. These points arguably raise questions about the durability of consumer spending, but it’s been a rough three years for Team Recession and their fellow travelers. The numbers right now look more favorable to Powell declaring final victory.

Another piece of this puzzle is arriving soon in the form of the monthly jobs report, the final comprehensive look at the US labor market before the Fed’s policy meeting. Over in Europe, which is already ahead of the Fed as far as lowering rates is concerned, another European Central Bank cut got fresh reinforcement as euro-area inflation in August plunged to the lowest level since mid-2021. While the Fed’s power has been on display in this cycle, and indeed over the past few decades, Allison Schrager writes in Bloomberg Opinion that it’s time for the US government to spend more on growing the economy so the central bank isn’t “the only game in town.”