Although the United States does not currently appear to be in a recession, recent data suggests that the economy may be closer to the brink of a downturn than previously thought. The following three major signals indicate that a recession capable of triggering a stock market crash is approaching, while also pointing to a potential avenue for the Federal Reserve to intervene and prop up the market once again under such circumstances.
On the surface, the January employment report appeared strong: it showed the economy added 130,000 jobs that month, roughly double economists’ expectations, and the unemployment rate fell to 4.3%. However, a deeper analysis reveals that most of the new positions came from the healthcare and social assistance sectors, which rely heavily on government funding.
Worse still, revised data from the U.S. Department of Labor indicates that the U.S. economy actually added only 181,000 jobs in all of 2025, far below the previously estimated 584,000. For comparison, the economy added nearly 1.46 million jobs in 2024. This is undoubtedly bad news for an economy primarily driven by consumer spending, as sustained income is the foundation supporting consumption.
Meanwhile, reports show that the delinquency rate for consumer loans, including mortgages and credit cards, has reached its highest level in nearly a decade. According to a recent report from the Federal Reserve Bank of New York, total U.S. household debt reached $18.8 trillion in the fourth quarter of 2025, with non-housing debt approaching $5.2 trillion.
The overall debt delinquency rate rose to 4.8%, its highest level since 2017. The report also specifically noted that while mortgage delinquency rates are “near historical normal levels, the deterioration in credit quality is concentrated in lower-income areas and regions where home prices have fallen.”
In the aftermath of the pandemic in 2020 and 2021, consumers were flush with cash. Interest rates were at zero, and the government had injected trillions of dollars into the economy. With pandemic-related social distancing measures limiting daily activities, savings actually increased rather than decreased, and consumer demand was strong. However, economic data now shows that these excess savings have largely been depleted.
As of last November, the U.S. personal saving rate (personal saving as a percentage of disposable income) stood at 3.5%. Although higher than the low point in 2022, it is significantly below the 6.5% recorded in January 2024. At the same time, credit card debt continues to rise.
Just as in the past, the Fed could rescue the market by persistently implementing accommodative policies, which has been the norm for most years since the Great Recession of 2008. This would mean cutting interest rates more aggressively than anticipated and expanding (or at least not shrinking) its balance sheet.
The Fed certainly has room to cut rates if necessary. If the unemployment rate rises and inflation continues moving towards the Fed’s 2% target, the Fed could continue to lower rates. Former President Trump has also explicitly expressed his desire for the Fed to reduce interest rates.
However, if inflation remains high or rebounds, the rationale for the Fed to cut rates would weaken. But barring unforeseen catastrophic events, historical experience suggests that as long as the Fed maintains an accommodative stance, it is difficult for the market to remain in a prolonged downturn. This effectively provides a floor under any mild recession.
