Is US economy still strong or starting to crack? This week will offer key clues

The US economy is sending mixed signals. On one hand, inflation remains under control, unemployment is low, and consumer spending continues despite widespread pessimism. On the other hand, signs of strain are appearing—tariffs are starting to bite, hiring is slowing, and people are cutting back on travel and leisure. These early warnings could deepen as President Trump’s policies work through supply chains and corporate strategies, the New York Times reported.

A decisive week for data and policy

This week brings crucial data points that could clarify the economic direction: GDP, consumer spending, inflation, and job market reports. These will be coupled with Wednesday’s Federal Reserve meeting on interest rates and Friday’s looming tariff deadline. Trump has warned that countries failing to finalize trade deals will face steep tariffs. Economists say what happens this week could heavily influence whether the Fed adjusts rates in September.

The Fed walks a political and economic tightrope

The Fed is expected to hold interest rates steady for the fifth straight meeting. But the decision comes before most of the week’s major data releases. Fed Chair Jerome Powell is likely to avoid making strong signals either way. While two Trump-appointed governors are pushing for immediate rate cuts, others on the board urge caution. This internal split—if it results in dissent—would mark the first such disagreement in over 30 years.

What’s next: Two possible paths

Economists outline two main possibilities. In one, a weakening labour market triggers higher unemployment and slower inflation, giving the Fed room to cut rates. In the other, the economy remains strong, making it harder to justify easing monetary policy. Ironically, strong job data—usually welcome news—could intensify political pressure on Powell, since it weakens the argument for cutting rates while Trump continues to demand aggressive easing.

Tariffs: A wildcard for growth and inflation

Despite new trade deals with Europe and Japan, the risk of higher tariffs remains. While the EU deal capped tariffs at 15%—lower than Trump’s initial threat—it’s still far above pre-Trump levels. Businesses are now burning through stockpiled inventories and may soon be forced to pass higher costs onto consumers. That could accelerate inflation just as the Fed is trying to keep prices stable.

No end in sight for tariff uncertainty

Even with recent deals, there’s scepticism about whether the threat of tariffs has truly diminished. These agreements are still broad frameworks, not final pacts. Trump’s track record of revisiting tariff terms after signing deals means more uncertainty could lie ahead. If he follows through with further hikes after the August 1 deadline, inflation and economic strain may rise sharply.