A sharp drop in the GDP tracker at the Atlanta Federal Reserve indicates the US could already be in a recession, as it fell to a minus 2.1% for the second quarter, following minus 1.6% in the first quarter.

A recession technically is two successive quarters of negative growth, so if these numbers are borne out in the official data at the end of this month, the US entered a recession in the first half of this year after many economists expected it next year at the earliest.

Consumers have started holding back on spending in the face of soaring inflation. Data from the personal consumption expenditures reading followed closely by the Fed showed disposable income down 0.1% and consumer spending, after adjustment for inflation, down 0.4%.

PCE core inflation, excluding volatile food and energy prices, was up 4.7% on the year in May. Overall, however, inflation was up 6.3% on the year, unchanged from April, and up 0.6% on the month, compared to a 0.2% monthly gain in April.

This is all bad news. Coupled with the 8.6% gain in the consumer price index reported earlier, the data painted a gloomy picture.

The silver lining is that the advent of a recession could prompt Fed policymakers to curb their aggressive rate-hiking, which currently sets a target of 3.8% for overnight rates in 2023, after hitting 3.4% by the end of this year. The June hike brought the target rate to between 1.5% and 1.75%.

Although the plan is to raise the fed funds rate by three-quarters of a point at the July 26-27 meeting of the Federal Open Market Committee, Philadelphia Fed President Patrick Harker said policymakers could hold it to a half-point increase if demand softened.

Financial markets and policymaking halted for a long July 4 weekend in the US, but Europe was abuzz with talk of inflation and recession as the European Central Bank held its annual forum in the Portuguese resort town Sintra, the equivalent of the Fed’s Jackson Hole meeting in August.

Inflation in the eurozone rose to a record high of 8.6% on the year in June, after rising 8.1% in May, as economists had forecast only 8.4% for last month. The Friday report on inflation came after ECB President Christine Lagarde started talking tougher at Sintra and puts pressure on the ECB governing council to raise its policy rate in July by more than the planned quarter-percentage point.

Along with the recession, the biggest fear for policymakers in Europe is “fragmentation”—wider spreads between government bond yields among eurozone member states. The ECB is working on an anti-fragmentation tool to support the bonds of weaker members.

Some analysts are skeptical that the ECB’s new tool can thread the needle between its limited pandemic emergency purchase programme and the never-used Outright Monetary Transactions, which is unlimited but imposes strict conditions on the country supported.

When Mario Draghi was head of the ECB and said the central bank would do whatever it takes to save the euro, his credibility as a central banker carried the day. Lagarde and the current crew at the ECB may not be as credible when they finally introduce their support programme.

Fed Chairman Jerome Powell, who attended the Sintra forum, continued to hem and haw about getting inflation back to “normal,” but Lagarde was more forthright about how permanent the shift due to COVID and Ukraine is likely to be.

“There are forces that have been unleashed as a result of the pandemic, as a result of this massive geopolitical shock that we are facing now, that are going to change the picture and the landscape within which we operate,” she said at the forum.