A growing number of economists warn that the Federal Reserve is keeping interest rates too high for too long, risking an unnecessary recession. While inflation has not fallen to target, it has come down significantly from its peak, and many price pressures are fading—supply chains have healed, energy costs are moderating, and wage growth is slowing.
Critics argue that monetary policy works with long and variable lags. The full impact of past rate hikes is still working through the economy, especially in interest-sensitive sectors like housing, construction, and small business investment. Keeping rates elevated now could crush demand, leading to job losses and a contraction.
Affected groups include first-time homebuyers frozen out of the market, small businesses struggling with loan costs, and manufacturers seeing export orders fall as the dollar strengthens. German carmakers and machinery exporters are already feeling the pinch as a strong dollar makes their products pricier in the US.
The practical alternative is a measured, gradual easing cycle starting this year. By cutting rates a quarter-point at a time, the Fed can support growth without reigniting inflation. Waiting too long could turn a soft landing into a hard one, hurting workers and businesses on both sides of the Atlantic.