The mainstay of the US economy is showing cracks, it's time for the Federal Reserve to take action!

However, in a broader sense, many families are still continuing to consume, dining out at restaurants, helping to keep the economy vibrant. Consumption is a major pillar of the U.S. economy. Despite increasing concerns from workers and Wall Street about the labor market, the tendency to consume still exists.

Doug Gimple, a senior investment portfolio expert at Diamond Hill Capital Management in Columbus, Ohio, said, "If you ask middle and low-income consumers, they may feel that the economy has already entered a recession."

Part of the reason is that credit card interest rates have hit a series of records, making debt management more costly, and the stimulus measures during the COVID-19 pandemic have faded.

Perceptions of economic pressure vary across the United States. Many homeowners have benefited from the recent surge in house prices and the cushion of ultra-low 30-year fixed-rate mortgages.

Additionally, as the stock market surged 14% this year, 401(k) plans (savings plans established by companies for employee benefits) have helped many people increase their wealth.

Considering that the unemployment rate is still below historical average levels, from the consumer's perspective, there are no clear signs of a recession in the U.S. economy. Gimple said, "People fear the great calamity of an economic recession, but looking at the current economic data, the situation is quite stable."

For decades, Wall Street has become a major source of household financing by packaging car loans, credit cards, and other forms of consumer debt into bond trades. This year, these trades have been busier than ever before.

According to data from BofA Global Research, the issuance of these bonds (or "asset-backed securities") has reached approximately $227 billion so far in 2024, an increase of about 31% from a year ago, setting a new record for the same period in previous years.

The bank's researchers wrote in a recent client weekly report, "Our current forecast for the full-year issuance of asset-backed securities is $315 billion, which would set a historical record if achieved."

Furthermore, according to data from Deutsche Bank's Consumer Credit Research team, banks did not cut consumer loans overall in the second quarter, marking the first time in eight quarters.

However, last week, as popular yen carry trades were massively unwound, causing global markets to struggle, the credit market briefly froze, and the asset-backed securities market was not spared. But according to data from Bank of America Global, when the dust settled, the spread of benchmark asset-backed securities was only about 5-10 basis points, slightly higher than the 24-month low.

This spread refers to the premium investors earn above the "risk-free" rate to help compensate for default risk. In the higher-risk high-yield or corporate junk bond markets, spreads are still higher than recent lows. In addition to cracks appearing in consumer credit, Wall Street is also closely monitoring junk bonds for early warning signals of economic pressure.

As the focus shifts from easing inflation to cooling labor markets, the economic team at the Boao Forum for Asia recently stated that they now expect the Fed to cut interest rates twice this year, four times in 2025, and twice in 2026 This pace will lower the Federal Reserve's terminal interest rate from the current 5.25%-5.5% to between 3.25%-3.5%, easing pressure on consumers.

The expected easing measures of the Federal Reserve to lower interest rates seem to be timely.

A survey by the New York Fed in July showed that consumers have mixed views on the labor market, but concerns about being unable to pay bills in the next three months have reached the highest level since early 2020.

Eric Winograd, Director of Developed Markets Economic Research at Alliance Bernstein, said: "If we see layoffs, job losses starting to happen, then things will get more difficult." I think the Fed knows this, which is why we may be at the forefront of interest rate cuts."