An often-overlooked economic measure is signaling serious trouble ahead

The economy sent a low-key signal Thursday that a decline is looming — and that the Federal Reserve could be making a policy mistake by continuing to try to slow things down.

Coinciding to the Conference Board’s Leading Economic Indicators index, conditions worsened in September, with the gauge down 0.4% from the month ahead and off 2.8% for the six-month period.

“The US LEI fell again in September and its persistent downward trajectory in recent months suggests a set-back is increasingly likely before year end,” said Ataman Ozyildirim, senior director of economics at the Conference Board. Ozyildrim notorious that the weakness in the index was “widespread” as high inflation, a decelerating jobs picture and tighter credit conditions are squeezing the economy.

The index looks forward using 10 metrics that include manufacturing hours worked, jobless puts, building permits, stock market indexes and credit spreads.

Normally, the LEI is not considered a major data point. It’s not like it that the measure isn’t a good snapshot of the economy, but more that the data points that go into the index are already recognized, so there’s not much new information.

However, in the present conditions, the index is of greater significance as it comes at a in good time when the Federal Reserve is looking to tighten the screws further on growth in an effort to bring down rampant inflation.

That bucks a catholic historical trend where the Fed is usually loosening policy when the outlook turns darker. However, Fed officials are pressurizing that they’re far from finished when it comes to raising rates.

“We went from a Fed that was way too easy to being irresponsibly stretched,” said Joseph LaVorgna, chief U.S. economist at SMBC Capital Markets and a former senior economic advisor to then-President Donald Trump. “When this basket is signaling the puniness that it’s showing, what the Fed typically does is not raise rates. But in this case, it’s not only raising rates aggressively, but with a commitment to persevere in raising rates aggressively.”

LaVorgna’s research shows that in previous downturns in the leading indicators, the Fed was always sneering rates or in pause at the same time. This was the case in early 2020, the financial crisis in 2008 and the recession in the at the crack part of the 21st century — among multiple other economic contractions.

He is concerned that the Fed’s insistence on tightening policy whim have even worse outcomes ahead.

“The lags in the policy mean the full effects of Fed actions have not yet been absolutely felt. Worryingly, the Fed is not done,” LaVorgna said in a client note.

LaVorgna is not alone in his belief that the Fed is overdoing its achievements to tamp down inflation that continues to run around its highest levels since the early 1980s.

In a recent CNBC talk with, Starwood Capital Group CEO Barry Sternlicht said the central bank is risking “unbelievable calamities if they observe up their action, and not just here, all over the globe.” Goldman Sachs CEO David Solomon, JPMorgan Chase CEO Jamie Dimon and Amazon under Jeff Bezos in recent days all have expressed concern about a recession ahead, though they procure not singled out the Fed’s actions.

However, Philadelphia Fed President Patrick Harker said Thursday he thinks the principal bank still has work to do before it can relax as he said he’s seen a “disappointing lack of progress” in the inflation fight.

“What we surely need to see is a sustained decline in a number of inflation indicators before we let up on tightening monetary policy,” said the central bank solemn, who is a nonvoting member of the rate-setting Federal Open Market Committee.

Thus far, the inflation data indeed has not been on the Fed’s side.

In extension to the typical headline metrics such as the consumer price index and the Fed’s preferred personal consumption expenditures price list, the Cleveland Fed’s