Economists at several major banks are increasingly focused on a subtle but dangerous phase of the cycle known as "stall speed," in which hiring slows enough to weaken incomes and consumption but not so abruptly as to immediately trigger policy responses. That measured deterioration, forecasters warn, can create a feedback loop of slower spending, firmer job cuts and ultimately a recession.

Barclays economists have placed the risk of a downturn squarely on the table, estimating better than a one-in-three chance that the U.S. will be in recession by mid-2026 and more than a 50 percent probability by mid-2027. Barclays strategist Berezin, whose outlook sits on the more bearish end of Wall Street, went further, estimating a 60 percent chance the U.S. economy will enter a recession within the next 12 months. Those calculations reflect the bank’s reading of recent labor-market data and the lagged effects of monetary policy.

JPMorgan’s economist team has likewise put “stall speed” on its radar after recent lackluster jobs reports and commentary from Federal Reserve Chair Jerome Powell. Following the Fed’s July policy meeting, Powell made a notable remark about the central bank’s concern for “higher layoffs and rising unemployment,” language that signaled an elevated sensitivity at the Fed to signs the labor market is cooling. That concern matters because monetary policy works with long and variable lags; weak labor-market dynamics today can be amplified into broader demand weakness months down the road.

The mechanics are straightforward: when firms shift from hiring to trimming payrolls, household income growth slows, consumption moderates and businesses pull back on investment. That erosion in aggregate demand can prompt further job cuts, creating a self-reinforcing contraction. In that scenario, economists say, a recession becomes far more likely unless offset by fiscal stimulus, a sharp rebound in productivity or an abrupt improvement in external demand.

The warning carries immediate market implications. Rising recession probabilities typically compress equity valuations, pressure cyclical sectors, and push investors toward safe-haven assets. For policymakers, the trade-off remains acute. The Fed has continued to emphasize its commitment to reining in inflation, but its willingness to tolerate higher unemployment depends on how rapidly labor-market slack appears. A prolonged period of stall speed complicates that calculus: holding rates high to choke inflation risks deepening the labor-market slowdown, while easing prematurely could reignite inflation pressures.

Longer-term, the debate centers on structural versus cyclical drivers. If stall speed reflects cyclical tightening from monetary policy, it may be transitory and amenable to policy correction. If instead the shift stems from slower labor-force growth, weaker productivity or persistent demand shortfalls, the consequences could linger, reshaping growth expectations and long-run investment strategies.

For now, forecasters and market participants will be watching payroll reports, initial jobless claims, wage growth and hiring intentions closely. Those indicators will determine whether the soft patch becomes a transient lull or the start of a vicious cycle that pulls the broader economy into recession.