Key Points
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Recent data has renewed fears over a looming recession, and the stock market may not respond well to that.
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Job growth in 2025 was lower than expected, while consumer delinquencies continued to rise.
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The Federal Reserve likely has a few cards to play if a recession were to hit.
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There is rarely a clear-cut start and end date to a recession. By the time people realize they are in a recession, it’s usually been going on for several months. That’s because much of the economic data that investors and consumers rely on is released with a lag. There are often revisions to this data, which can indicate that the economy might have been performing much better or worse than everyone initially believed.
While the U.S. does not currently appear to be in a recession, recent data suggests that the economy might be closer to one than believed. Here are three signs of a looming recession that could trigger a stock market crash, along with one way the Federal Reserve can still bail the market out in such a scenario.
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1. Job growth has been dismal
On the surface, the recent January jobs report looked phenomenal. It showed that the economy added 130,000 jobs, roughly double what economists expected, and that the unemployment rate declined to 4.3%. However, underneath the hood, the report showed that the majority of gains came from new jobs in healthcare and social assistance, which rely heavily on government funding.
Even worse, revisions by the U.S. Labor Department showed that the U.S. economy actually only added 181,000 jobs in 2025, down from an estimated 584,000. In 2024, the economy added nearly 1.46 million jobs. In an economy that’s largely powered by consumer spending, this is bad news because consistent income fuels much of this spending.
2. Consumer delinquencies recently hit a decade high
Meanwhile, consumers are reportedly falling behind on their loans, such as mortgages and credit cards, at the highest level in roughly a decade. According to a recent report from the Federal Reserve Bank of New York, household debt hit $18.8 trillion in the fourth quarter of 2025, with non-housing debt accounting for nearly $5.2 trillion.
Aggregate delinquencies ticked up to 4.8% of all outstanding debt, the highest level seen since 2017. The report also noted that delinquencies for mortgages are “near historically normal levels, but the deterioration is concentrated in lower-income areas and in areas with declining home prices.”
This is indicative of a K-shaped economy, suggesting that higher-income households are growing their wealth, while lower-income households are struggling. Furthermore, after a decade of strong credit quality, conditions are bound to normalize, pushing delinquency and loss rates higher.
Student loan payments have also resumed after several years of a pause, which could be affecting the numbers as well. There is also conflicting data on the state of the consumer. For instance, Bank of America CEO Brian Moynihan recently said the bank has noticed an acceleration in consumer spending among its customer base. Other data suggests that retail sales grew in January.
3. Consumer savings are dwindling
Following the pandemic in 2020 and 2021, consumers were flush with cash. Interest rates were at zero, and the government had injected trillions into the economy. There was strong consumer demand because people had to practice social distancing during the pandemic’s height, which prevented them from doing many of their normal activities and therefore saved them more money. Now, according to economic data, much of that savings is gone.
As of last November, the U.S. personal savings rate, which measures personal savings as a percentage of disposable personal income, was 3.5%. That’s higher than the lows experienced in 2022, but down from 6.5% in January 2024. Credit card debt also continues to climb.
All this data could have a chain-like effect. With savings much lower, people need jobs to keep spending, which in turn powers the U.S. economy. If unemployment rises and more people are laid off, it could significantly hurt consumer spending.
How the Fed could bail out the market
For years, there has been controversy over the Federal Reserve’s role in markets and whether it has been too supportive. Some, like the new incoming Fed Chair Kevin Warsh, have previously argued that the Fed’s role is too big. But untangling this relationship may be difficult.
That’s because more retail investors than ever have been investing in the stock market, making Wall Street more connected to Main Street. Many have their savings tied up in the market, so a bear market with a 20% drawdown or more could really raise concerns about personal savings and delinquencies.
As it has in the past, the Fed could bail out the market by continuing to implement an accommodative policy, as has become the norm for the Fed in most years since the Great Recession in 2008. This means lowering interest rates more than expected, and either growing the Fed’s balance sheet or at least not shrinking it.
The Fed certainly has the slack to lower rates if needed. If unemployment rises and inflation continues to move toward the Fed’s 2% target, the Fed can continue cutting rates. President Donald Trump has also been quite clear about his desire for the Fed to lower rates.
If inflation remains elevated or even rises, the Fed will have less reason to lower rates. But barring some unforeseen event, which is always hard to rule out, if the Fed maintains an accommodative policy, it has been hard to keep the market down for long. This, in my mind, serves essentially as a put on any kind of moderate recession.
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