The U.S. finds itself in a pivotal period as inflation continues to ease, with the Federal Reserve contemplating the timing of future interest rate cuts. This “critical moment” of anticipation was highlighted by Jack Kleinhenz, Chief Economist of the National Retail Federation (NRF).

“Today we’re waiting once again,” Kleinhenz said, referring to a point in 2017 when economists were waiting to see if fast economic growth and low unemployment would cause an increase in inflation. “Much like 2017, the economy is going strong, and the labour market is still relatively tight. But this time we’re waiting for inflation to come down – and we’re also waiting for the Federal Reserve to decide on when to lower interest rates.”

Over the past two years, the Federal Reserve has had to balance the use of high interest rates to curb inflation against the risk of stalling the economy into a recession by keeping rates elevated for too long.

“We’re at a critical moment as consumers, businesses, investors, and others wait to learn how they will need to adjust their plans for future economic conditions,” Kleinhenz stated. “Fortunately, the risks for monetary policy look balanced at the moment.”

Kleinhenz’s insights were featured in the July issue of the NRF’s Monthly Economic Review. The report noted that year-over-year gross domestic product (GDP) growth slowed from 3.4% in the fourth quarter of 2023 to 1.4% in the first quarter of this year, marking its lowest point since the spring of 2022. This deceleration was primarily driven by reduced consumer activity – a deliberate outcome of high interest rates aimed at controlling inflation without triggering a recession.