A new Rosenberg Research indicator shows that only 18 percent of the U.S. population now lives in regions classified as economically expanding—the lowest share since May 2020. This collapse in the breadth of growth is one of the clearest statistical signs that the United States may already be in a hidden or rolling recession, even as headline GDP and employment data indicate otherwise. The eighteen percent matches levels observed only during sharp downturns in 2001, 2008, and 2020--each of which corresponds to a deep recession.
The 18 percent validates a 2023 speech given by Federal Reserve Governor Christopher Waller in which he argued that modern monetary transmission—driven by forward guidance, expectation effects, and the speed of information—compresses the usual lag between tightening and its real impact.
That the economy is expanding in just a small sector of the U.S. economy is no statistical anomaly. Manufacturing activity has contracted for over a year, small-business credit has tightened, and consumer spending is increasingly supported by short-term credit rather than income growth. The average looks stable only because a few sectors—technology, defense, and government— continue to expand. Beneath those aggregates, the productive base of the economy is shrinking.
Waller rejected the idea that policy operates through long, slow lags, arguing that the magnitude and communication speed of recent rate increases—especially through forward guidance and market expectations—brought immediate tightening in financial conditions.
Large shocks, he argued, command instant behavioral response. Households and firms, no longer “rationally inattentive,” adjust quickly to protect cash flow and pricing positions. That dynamic eliminates much of the twelve-to-twenty-four-month lag long assumed in monetary models. “Big shocks travel fast,” Waller said, meaning that the full economic impact of the 2022–2023 hikes would arrive far sooner than markets anticipated.
When the Federal Reserve began lowering rates in 2025, it described the move as a response to easing inflation and an effort to “balance risks.” Yet a more realistic motive was that it was an acknowledgement that policy had overshot. If less than one-fifth of Americans live in expanding regions, the tightening impulse has already passed through the economy with full force.
Seen through Waller’s lens, the Fed’s current easing is not a policy reversal but a chronological correction—an adjustment to the reality that the lag between rate hikes and contraction has already closed.
The eighteen percent measure exposes the limits of relying on national aggregates to guide monetary decisions. Headline GDP can remain positive even when most regions are stagnating.
Waller’s shorter-lag hypothesis gives these regional data new interpretive power. It is the real-time manifestation of tightening that took effect through expectations, credit repricing, and price-reset behavior almost as soon as the policy path was announced.
The Federal Open Market Committee rarely mentions breadth metrics, preferring coded terms such as “uneven conditions” or “softening activity,” yet these phrases--read through Waller’s framework--signal an internal recognition that the 2022–2023 tightening shock has impacted the macroeconomy. The FOMC’s silence is not denial—it is discretion.
The U.S. economy may already be in a mild recession, and the large and rapid hikes of the post-pandemic cycle transmitted almost immediately through forward guidance and credit channels, leaving little “delayed” restraint still to come.
The correct policy response now is stabilization, not further tightening. Continued restraint risks deepening the contraction that regional data already reveal. Rate cuts simply align policy with the chronology Waller described two years ago.
