The economy isn’t in recession, and isn’t likely to go negative in the immediate future, but the mounting pressure via White House policies will test US resiliency in the months ahead.Since President Trump’s inauguration in January, he’s rolled out an ever-growing list of changes and challenges to the status quo. Perhaps the biggest change is elevated uncertainty, starting with tariffs and expanding into other areas that influence the economy. Since announcing a broad package of sharply higher tariffs on April 2, the details have been a blur a shifting rules, often at the whim of the president. The US-Japan trade deal, for example, remains fluid, with details still unclear. Meanwhile, a lack of clarity on the path ahead for US-China trade remains a significant source of macro uncertainty.Some projections of higher US tariffs indicate that the revenue will reduce the federal deficit by as much as $4 trillion over the coming decade. But this is no free lunch in the sense that higher tariffs may raise inflation and slow growth.The Trump administration is also eager to expand White House control over other facets of the economy. For example, Commerce Secretary Howard Lutnick on Friday said the government has taken a 10% stake in chipmaker Intel in an effort to influence private business decisions. White House economic advisor Kevin Hassett added that “I’m sure that at some point there’ll be more transactions, if not in this industry then other industries.”Meanwhile, Trump announced yesterday that he has fired Federal Reserve Governor Lisa Cook for allegedly making false statements on applications for home mortgages. Cook vowed that “I will not resign,” and the matter looks set to go to federal court, and perhaps wind up in the Supreme Court.The effort to remove a sitting Fed governor has alarmed many observers.“This is unprecedented,” said Lev Menand, a professor at Columbia Law School. “If this removal sticks … it spells something close to the end of central bank independence in the US.”Trump’s unconventional approach to economic policy may be just getting started. Whether you agree or disagree with his decisions, it’s clear that his agenda will challenge the economy in ways that have little if any precedent in the modern era. The outcome, it’s fair to say, remains in flux.The challenges come at a vulnerable point for the economy amid hints that growth is slowing and inflation is rising. The Chicago Fed National Activity Index for July, for example, indicates sluggish US economic activity for the fourth month in July. The monthly index posted a below-trend reading last month, with three of the four broad categories reflecting negative contributions.A downshift in the US labor market is part of the mix, says Andy Challenger, senior vice president of executive outplacement firm Challenger, Gray & Christmas.“There’s a real cooling in the labor market. We’re also having lots of individual conversations with companies that are letting us know to expect future layoffs.”In the meantime, inflation is starting to accelerate. Core CPI, which strips out the volatile food and energy components, and is said to be a more reliable measure of the trend, picked up to a 3.1% annual pace – the highest since February and more than a full percentage point above the Fed’s 2.0% inflation target.Some business cycle indicators still reflect a solid pace of growth, such as the Dallas Fed’s Weekly Economic Index, based on data through August 9.But as the uncertainty persists related to tariffs, efforts to strong-arm the Fed, and other policy changes, the potential is rising for economic turbulence. In several respects, the US economy is heading into uncharted terrain.The path ahead looks like a grand experiment, and one that will test the resiliency of growth and the tolerance of financial markets. So far, there have been wobbles, but nothing of significance. The acid test, however, still lies ahead.By some accounts, the tipping point has already arrived. The economy has likely entered a “stall state,” according to Barclays analysts, who argue that “the underlying pace of US growth has decelerated to a pace that makes it vulnerable to a recession.”That’s a forecast and is unsupported by a broad review of published data currently. But the weeks ahead will test the resiliency. There are several indicators to monitor for real-time updates on how the macro trend is evolving.In addition to the Dallas Fed’s Weekly Economic Indicator, the Atlanta Fed’s GDPNow model offers timely indicators. On both fronts, the data still skews solidly toward growth. But with pressures building on several fronts, early warnings of trouble will likely emerge in these indicators.Original Post