Against that backdrop, the Trump administration is pushing an unusual idea that has puzzled economists: The Federal Reserve needs to slash interest rates. Immediately.
Larry Kudlow, the White House's top economic adviser, told CNBC on Friday that he wants the Fed to lower interest rates by half a percentage point right away.
"I am echoing the president's view," Kudlow said.
The Fed normally reserves such a dramatic step for a crisis moment — and while growth has slowed, this does not feel like one of those times.
"Where is the emergency?" asked Mark Zandi, chief economist of Moody's Analytics. "There is no economic argument for cutting rates."
The Fed slashed rates by more than a quarter point on multiple occasions last decade before and during the Great Recession. For example, it lowered rates by half a percentage point in September 2007 as the subprime meltdown infected global financial markets. That summer, two Bear Stearns hedge funds blew up, a bad omen of the crisis to come.
Even though today's economy is in vastly better shape, such a dramatic step by the Fed could undermine confidence.
"It's the equivalent of hitting a panic button — for any central bank, in any cycle," said Nicholas Colas, co-founder of DataTrek Research.
Investors, business owners and households could respond in kind — potentially creating the very recession that Kudlow seems to suddenly fear.
"If the Fed's in panic mode, shouldn't we be?" Zandi said. "I'm going to batten down the hatches, hire less, spend less. It could become self-fulfilling."
'Anything but crisis mode'
Some of Kudlow's former CNBC colleagues raised their eyebrows at his comments.
Cutting rates by half a percentage point "presumes we're in crisis mode," CNBC host Jim Cramer said Monday. "And we're in anything but crisis mode."
As recently as October, Kudlow told CNBC there was "no end in sight" to the "hot economic boom." Last July, Kudlow suggested there may not be a recession until maybe 2024.
Kudlow had to go through verbal gymnastics Friday to fit his call for an emergency rate cut within his uber-bullish view on the economy.
"I mean, the economy looks fundamentally quite healthy, we just don't want that threat," Kudlow said. "There's no inflation out there, so I think the Fed's actions were probably overdone."
Kudlow's comments come days after Stephen Moore, the economist President Donald Trump has said he will nominate to the Federal Reserve, similarly called for the US central bank to immediately slash interest rates. Former Fed officials and economists told CNN Business that such a move would be unwise.
Yes, the economy has slowed
Many on Wall Street agree that the Fed moved too aggressively last year to raise borrowing costs. The housing market slowed, auto sales stumbled and the stock market nearly plunged into a bear market.
But the Fed has already done a stunning pivot.
Central bank officials went from projecting three or even four rate hikes in 2019 to signaling none until 2020 at the earliest.
The Fed's sudden 180 helped lift the stock market back near all-time highs. The S&P 500 just completed its best quarter since 2009.
Even so, there are good reasons to be cautious about the economy. But not enough to justify a panicked response.
The Atlanta Fed's GDPNow is projecting first-quarter US growth of 1.7%. That would mark a further deceleration from third-quarter GDP growth of 3.4% and 2.2% in the fourth quarter.
And global bond yields have plunged. The 10-year Treasury rate now stands at 2.48%, down sharply from 3.23% in early November.
Futures markets have even begun to price in the likelihood of eventual rate cuts — though not an immediate one.
"The economy is not that strong, nor is it on the brink of recession," said David Kelly, chief global strategist at JPMorgan Funds. "It's simply slowing down."
Kelly noted that trade tensions, caused in large part by Trump's trade war with China, are slowing the global economy.
Zandi similarly blamed the trade war and threats of auto tariffs for hurting growth.
"It's largely the result of wrong-headed economic policy," said Zandi. "The Trump administration is looking for a scapegoat — and they found the Fed."
'Firing blanks'
It's also not clear whether slashing interest rates from these low levels — the Fed's target rate is sitting at just 2.25% to 2.5% — would be all that effective.
It's already very cheap to borrow. And US companies have piled on record amounts of debt relative to GDP.
"If the Fed cuts rates, it's firing blanks," said Kelly. "The best thing the Fed can do is work on their golf games — and don't move rates up or down."
The bigger picture: The Fed must guard against being viewed as acting on the whims of the White House. The Fed's role as an apolitical, independent institution is a pillar of the American economy.
"It would feel and sound like the Fed is just responding to administration pressure, which would undermine confidence in the Fed," said Zandi.
If the bond markets suddenly feared the Fed cared more about politics than inflation, long-term Treasury rates would rise no matter what the central bank does. That in turn would lift borrowing costs on everything from mortgages to business loans.
In other words, an emergency rate cut could backfire. Badly.
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