As for the Fed, here’s the bigger picture: The Fed is facing a difficult balancing act. Cut rates too soon, and inflation could accelerate. Keep rates elevated for too long, and borrowing costs could place additional pressure on consumers, businesses, and economic growth. Pausing rates may seem insignificant, but keep in mind that they raised rates at the last meeting. A pause here means that perhaps they are noticing some cracks in the economy as well. These cracks must be notable considering the current price of oil and it’s potential impact on inflation, which would typically drive another rate hike.
The Harlow Composite Recession Indicator (HCRI), my model, is showing some very interesting signals of late. As you know, it has two signals, “Watch” and “Warn”. Those two signals are triggered when the algorithm I built drops below a level of zero on the chart. A watch signal triggers when it dips below zero but then recovers the following month. A warn signal triggers when the chart spends two or more months below zero. Think of the watch signal as my model saying the economy is flirting with recession, not necessarily too late to pull itself out and achieve a “soft landing” as so many economists love to opine about. Think of a warn signal as my model declaring that the economic conditions are such that we are in a recession, despite the fact that the NBER hasn’t yet declared one. Unfortunately, they declare recession long after the economic consequences have already taken place, and hindsight is 20/20.
My model has triggered during every single recession dating back to 1955. Obviously, I will not disclose the metrics I used to build it, however I will give you a glimpse of the current signals. I want to note something important:
Not every recession triggers a watch signal, some go straight into full-blown downturns quickly. However, a watch signal was triggered in 3/10 recessions since 1955. In every one of those triggers, a full recession took place within 18 months.
So what? Well, my model triggered a watch signal in March of 2026. I will not sit here and declare that I’m 100% right and that every analyst on Wall Street is wrong. What I will do is demonstrate my faith in the model by bringing it public to all of you, despite normally being behind a paywall. If my model holds true, we will enter a recession by September 2027. See for yourself:
