Indicators for Concern and Fed's Ability to Respond

There are several indicators that would make the Fed concerned and prompt them to take action to prevent a deeper economic downturn. These indicators include widespread labor market deterioration, such as significant increases in initial jobless claims, declines in payroll growth, and a rise in the unemployment rate. If these indicators occur simultaneously, it would likely lead to rate cuts. However, the current forecast suggests that the labor market will continue to grow and the unemployment rate will remain stable or even decrease. In this scenario, early rate cuts are not expected. Nevertheless, the important difference from a year ago is that the Fed now has the ability to cut rates as a form of insurance against any unforeseen weakening. This ability significantly reduces the risk of recession compared to last year.