The US Economy's Double Punch: Why the Second Half of This Year?
The US economy is currently being caught in a pincer movement from two sides: slowing personal consumption and the Federal Reserve’s interest rate hikes. Behind the optimistic mood, the gears had begun to grind quietly.
> In a nutshell, this is the year when tailwinds turn into headwinds.
Key points of this article
・Slowing personal consumption and Fed rate hikes are occurring simultaneously
・The boost from tax cuts will disappear by the end of the year
・Mortgage rates exceeding 7% will impact consumption in six months
What happened
At the FOMC meeting on September 16, 2026, the Fed implemented its first interest rate hike in three years. Many market participants believe that the US economy will continue to grow strongly and steadily.
However, according to analysis by the Brookings Institution, the income-boosting effect of tax cuts is expected to shrink to zero in the second half of the year. Real personal consumption growth was already limited to an annual rate of 2.0% in the first half, which was roughly the same level as in 2025.
Why is the US economy being hit by a double punch?
Within the Fed, not a single official expected GDP growth to fall. Even so, the market has only priced in two more rate hikes by March 2027, somehow downplaying the risk of a resurgence in inflation. There was a structural complacency here.
What is actually hitting households is the rise in gasoline and grocery prices. The national average price for regular gasoline has risen by $1.25 per gallon compared to the same period last year. Energy prices should normally fall after the summer driving season ends, but they are rising instead. The US Consumer Confidence Index also fell in August, and the expectations index for the next six months approached 68.2, the lowest level this year.
In terms of regulations and policy, the increase in tax refunds from the “One Big Beautiful Bill Act,” a tax reform law passed in 2025, boosted GDP by 0.4 percentage points in the first half of the year. However, this effect is expected to reach zero by the end of the year and is projected to drag on GDP in 2027. We are currently at a turning point where fiscal policy is shifting from a tailwind to a headwind.
Looking at the industry as a whole, a pattern emerges where the cooling of the housing market erodes consumption with a six-month lag. Mortgage rates have topped 7% for the first time in over a year, and home sales were already slowing. Given that the consumption of large household goods like furniture and appliances, which boosted growth in the second quarter, will be affected by the slowdown in home sales with a six-month delay, it is highly likely that these will turn into negative factors toward the end of the year. Related analyses point out that even during the Volcker shock of 1979, there was a time lag of one to one and a half years before the effects of monetary tightening reached the real economy.
Applying this structure to my own work
During my time as a consultant, I often saw reports from client companies stating, “This term is going well.” But behind that, there were many cases where the order backlog for the next term was thinning. I feel that the story of the US economy this time follows the same pattern.
The habit of finding the “tailwind that is about to run out of effect” behind strong numbers was drilled into me during my consulting days. The process of the tax refund boost going from 0.4 points to zero overlapped exactly with the way temporary promotional effects for clients would fade away back then.
Another realization is that ignoring time lags leads to painful consequences. The observation that it takes six months for a slowdown in home sales to affect consumption of furniture and appliances was also a reflection on my past self, who ignored project lagging indicators and only chased short-term KPIs.
Regarding the Fed’s interest rate hike decisions, I see the move by Chair Kevin Warsh to reduce forward guidance after taking office as symbolic. Since they no longer indicate policy through words, the market has no choice but to rely solely on economic indicators. This is the same in corporate decision-making; I have learned from experience that one should look at “actual budget allocation” rather than a boss’s “words.”
For those who want to relearn the overall structure of the economy based on the lessons of the Volcker shock, a book that organizes the linkage between GDP, interest rates, and inflation from a business perspective would be useful.
Behind the strong numbers, when will the tailwind turn into a headwind?
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