The United States is at the beginning of a slowdown as the economy continues to face significant upside inflation risks and tighter credit conditions, according to new minutes from the July Federal Open Market Committee (FOMC) policy meeting.
(Article cross-posted from our premium news partners at The Epoch Times)
Although the economy has been expanding at a “moderate pace,” the latest credit developments in the “sound and resilient” banking system were “likely to weigh on economic activity” for businesses and households.
Staff economists no longer see a “mild recession” later this year amid better-than-expected spending and real activity.
“However, the staff continued to expect that real GDP growth in 2024 and 2025 would run below their estimate of potential output growth, leading to a small increase in the unemployment rate relative to its current level,” the minutes stated.
Most rate-setting committee members agreed that more interest-rate hikes could be needed if additional inflation risks materialize. Participants noted that inflation remained unacceptably high, and that more evidence was needed to determine if price pressures are diminishing on a sustainable basis.
“With inflation still well above the Committee’s longer-run goal and the labor market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy,” the meeting summary stated.
At the same time, Federal Reserve officials fear that the central bank could tighten too much, producing a series of risks for the broader economy.
“A number of participants judged that, with the stance of monetary policy in restrictive territory, risks to the achievement of the Committee’s goals had become more two sided, and it was important that the Committee’s decisions balance the risk of an inadvertent overtightening of policy against the cost of an insufficient tightening,” the FOMC minutes stated.
A couple of participants in the July FOMC meeting supported hitting the pause button. There were indicators that the jobs arena was going through a better balance despite the tight labor market.
“The labor market remained very tight, though the imbalance between demand and supply in the labor market was gradually diminishing,” the minutes said.
The U.S. financial markets maintained their losses following the release of the minutes, as the leading benchmark indexes were in the red.
Treasury yields were mostly up, with the benchmark 10-year yield adding nearly 4 basis points to 4.26 percent. The two-year yield picked up 3 basis points to above 4.98 percent.
The U.S. Dollar Index, a measurement of the greenback against a basket of currencies, strengthened above 103.40 after the minutes.
To Hike or Not to Hike
Over the past week, several Fed officials have offered thoughts about monetary policy, particularly on the interest-rate front.
Minneapolis Federal Reserve President Neel Kashkari told the APi Group’s Global Controllers Conference on Aug. 15 that he isn’t ready to declare mission accomplished in the inflation battle, hinting that there could be more tightening ahead.
“Inflation is coming down. We have made progress and good progress. I feel good about that. It’s still too high,” Mr. Kashkari said. “The question on my mind is, have we done enough to actually get inflation all the way back down to our 2 percent target? Or do we have to do more? Are we done raising rates? I’m not ready to say that we’re done.”
In July, the annual inflation rate ticked up for the first time in a year, rising to 3.2 percent from 3 percent in June. This came in softer than expected, but economists agree that it isn’t a trend that the central bank wants to see.
Concerns were amplified following the higher-than-expected jump in producer prices, climbing to 0.8 percent year over year and 0.3 percent month over month in July. Both were up considerably from June. A higher producer price index is typically considered by economists to be a precursor to rising consumer prices.
According to Philadelphia Fed Bank President Patrick Harker, consumer prices have slowed to the point at which the central bank can think about hitting the brakes and steadily holding the benchmark fed funds rate.
“Absent any alarming new data between now and mid-September, I believe we may be at the point where we can be patient and hold rates steady and let the monetary policy actions we have taken do their work,” Mr. Harker said in a prepared speech at an event sponsored by the Philadelphia Business Journal on Aug. 8.
While monetary policy isn’t a “preset course” and economic data will drive future moves, Fed Governor Michelle Bowman believes that policymakers will need to raise interest rates to combat inflation.
“I also expect that additional rate increases will likely be needed to get inflation on a path down to the FOMC’s 2 percent target,” she said at a Kansas Bankers Association event on Aug. 7. “We should remain willing to raise the federal funds rate at a future meeting if the incoming data indicate that progress on inflation has stalled.”
The FOMC will hold its next two-day policy meeting on Sept. 19 and 20.
The futures market is mostly pricing in a rate pause, according to the CME FedWatch Tool. Despite the FOMC’s June Summary of Economic Projections, which forecasted one more rate hike this year, investors anticipate that the central bank will keep the policy rate at the current range and then start to pull the trigger on rate cuts in March 2024 or May 2024.
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Two Storms, One Harvest
Every food crisis in living memory has been a one-shock event. The 2008 price spike was a commodity bubble. The 2020 shortages were a logistics failure. The 2022 grain scare was a war on one exporter’s ports. Each time, the system bent, adjusted, and recovered, and each time the experts assured us afterward that global markets are simply too big and too diversified to fail.
What nobody in Washington seems eager to discuss is that 2026 is shaping up to be something the modern food system has never actually faced. Two independent shocks, one climatic and one geopolitical, are converging on the same harvest cycle at the same time. Not sequentially. Simultaneously.
Start with the weather. The Pacific Ocean is currently building toward what forecasters now openly call a record event. NOAA’s Climate Prediction Center puts the odds of at least a strong El Niño near 88 percent, with roughly two in three odds it reaches “very strong” status, the tier reserved for perhaps three or four events in the entire satellite era. Every major global model now projects a median peak in Super El Niño territory, and most of them project it exceeding the 2015-16 event, which until now held the modern record. Sea surface anomalies were already brushing the super threshold in mid-July, months before these events normally peak. The atmosphere has already shifted into El Niño mode, and the event is forecast to crest in late fall and early winter.
This is not about “climate change.” It’s about the standard cycles of weather, and the cycle we’re currently in is one that has likely devastated societies in the past. We’re better prepared as a society today, but not all Americans are equally prepared.
Serious households have started doing the quiet math on their own. Grocery bills tell part of the story, and the forecast maps tell the rest, which is why long-term food storage has moved from fringe hobby to mainstream line item in the family budget, with established suppliers like Heaven’s Harvest seeing demand from people who five years ago would have rolled their eyes at the idea. That instinct is not paranoia. It is pattern recognition, and the pattern is worth walking through carefully.
Editor’s Note: Heaven’s Harvest IS a sponsor, but the warnings of this article are real and would be written even if we didn’t have a survival food sponsor. With that said, those who take advantage of what they offer can use promo code “Patriot” for 15% off.
The Fertilizer Clock Is Already Running
While the Pacific warms, the second shock has been unfolding in the Strait of Hormuz. The conflict with Iran turned the world’s most important energy chokepoint into a contested waterway, and the consequences reach far beyond the gas pump. Roughly a third of global fertilizer trade moves through Hormuz, and the disruption sent urea prices up 86 percent year over year by March, with a 53 percent jump in a single month.
The World Bank projects energy prices rising about 24 percent in 2026 and fertilizer about 31 percent. By its own accounting, fertilizer prices ran 35 percent higher in the first five months of this year than the same period last year.
Here is the mechanism the nightly news will not explain. Fertilizer is not a grocery item. It is a time-delayed input. The nitrogen a farmer in Iowa or Punjab could not afford to apply this spring does not show up as a problem this spring. It shows up as a thinner harvest six to twelve months later.
The World Bank’s own food security brief concedes that the effects of reduced applications earlier this season “are likely to become visible only later in harvest outcomes.” Translate that from institutional language into plain English and it means this. The damage is already done, it is already in the ground, and we are simply waiting for it to arrive on the shelf.
Now check the calendar. Six to twelve months from the spring planting season lands us squarely in late 2026 and early 2027. Which is precisely when the strongest El Niño in the instrumental record is forecast to peak, bringing its signature droughts to Southeast Asia, Australia, southern Africa, northern Brazil, and South Asia, the very regions that grow the world’s rice, sugar, and oilseeds.
The World Bank warns openly that a strong El Niño “could disrupt multiple crop belts simultaneously” on top of the conflict-driven input costs. Their baseline projection assumes the Middle East disruptions ease by autumn. What in the last two years of Middle East history suggests that assumption is safe?
The System Has No Slack Left
The comfortable answer is that global markets always adjust. But adjustment requires slack, and the slack is gone. Global cereal production is expected to decline from last year’s records even before El Niño does its work. The UN World Food Programme, hardly a den of right-wing preppers, is calling this the most significant disruption to its supply chains since Covid and the invasion of Ukraine, and its supply chain director put the stakes bluntly.
Today’s supply chain challenges are tomorrow’s hunger crisis.
There is also a political dimension that markets cannot price. When food gets scarce, governments do not behave like economists. They behave like politicians. Export bans, hoarding mandates, and panic buying at the national level turned the modest rice shortfall of 2008 into a global crisis, and analysts are already warning that import-dependent nations are the first dominoes.
The 2015-16 Super El Niño, a far weaker event than what is now forecast, threw tens of millions into food stress across Africa and Asia. This one is projected to be stronger, and it arrives with fertilizer already rationed by price and shipping lanes already contested by missiles.
What Joseph Knew
Scripture does not treat preparation for lean years as faithlessness. It treats it as wisdom delivered in advance to those willing to act on it.
Behold, there come seven years of great plenty throughout all the land of Egypt: And there shall arise after them seven years of famine; and all the plenty shall be forgotten in the land of Egypt.
Joseph did not respond to that warning with a hashtag or a committee. He stored grain during the years of abundance, and when the famine came, Egypt stood while its neighbors begged. The lesson is not that famine is certain. It is that the time to prepare is precisely when preparation still looks optional.
Nobody who filled a pantry in a year of plenty has ever regretted it, and nobody standing in an empty aisle has ever been glad he waited for certainty.
None of this calls for panic, and panic is the enemy of sound judgment anyway. It calls for the same unglamorous prudence our grandparents considered ordinary. Keep some cash margin, know your local growers, and put real food in deep storage while it is cheap and available, because the entire arc of this story is that cheap and available is a closing window.
Families looking for a straightforward place to start can visit Heaven’s Harvest and use promo code Patriot for 15 percent off long-term storable food. The forecasts may yet soften, the strait may yet reopen, and we should pray they do. But hope is a fine thing to hold and a foolish thing to eat.