A sharp drop in the Federal Reserve’s tracker in Atlanta indicated the US may already be in recession as it fell to minus 2.1% in the second quarter after a 1.6% decline in the first quarter.

A recession technically represents two consecutive quarters of negative growth, so if those numbers are confirmed in official data later this month, the U.S. entered a recession in the first half of the year after many economists predicted early next year.

Consumers started pulling back as inflation rose. Data from closely followed Fed estimates showed disposable income fell 0.1% and consumer spending adjusted for inflation fell 0.4%.

Core PCE inflation, excluding volatile food and energy prices, rose 4.7% year over year in May. Overall, however, inflation rose 6.3% y/y, unchanged from April, and rose 0.6% m/m, compared with a 0.2% month-on-month gain in April.

This is bad news. With the 8.6% increase previously reported, the data paints a bleak picture.

A slowdown could prompt central bank policymakers to rein in rate hikes, which currently target rates at 3.8% in 2023, reaching 3.4% by the end of the year. It raised the target rate to 1.5% to 1.75% in June.

Although the Fed plans to target funds at 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 raise rates by half a point if demand weakens.

The July 4 long weekend in the US brought financial markets and policymaking to a standstill. But as Jackson Hole held its annual forum in the Portuguese resort of Sintra, parallel to the Federal, Europe was buzzing with talk of inflation and recession. Reserve meeting in August.

Also, it rose to 8.6% year-over-year in June, after rising 8.1% in May, as economists had forecast just 8.4% last month. Friday’s inflation report prompted European Central Bank President Christine Lagarde to get tough on Sintra, urging the ECB’s governing body to raise its policy rate by more than a quarter of a percentage point planned for July.

Apart from recession, the biggest concern of European policymakers is “fragmentation” – the wide spread of government bond yields among eurozone member states. The European Central Bank is also working on an anti-fragmentation instrument to support weaker member societies.

Some analysts suspect that the ECB’s new tool could bridge the needle between a limited pandemic emergency purchase program and direct cash transactions that have never been used.

His credibility as a central banker continued when Mario Draghi was president of the European Central Bank and said the central bank would do whatever it took to save the euro. Lagarde and the current staff of the European Central Bank will not have the same credibility when they finally introduce their support program.

Meanwhile, central bank chief Jerome Powell, who attended the Syndra forum, remained concerned about inflation returning to “normal” levels, but Lagarde was more vocal about how much change would continue due to the novel coronavirus and Ukraine.

“There are forces that have been unleashed as a result of the pandemic, as a result of this massive geopolitical shock that we are now facing, that will change the picture and the landscape in which we operate,” he told the forum.