Don’t worry. According to Trump and Fox News there will never be a recession while he is in charge. His blind fans will believe them because they listen to no one and nothing else. They can just post another tacky picture of Mnuchin and his wife greedily holding up sheets of dollar bills and yell that the economy is doing the biggest and best ever in the whole history of the whole wide world and Trump’s supporters will buy it. They bought snake oil and will continue to insist it is healing their ills no matter what harm comes to them through Trump and the GOP’s incompetent economic decisions.
132
Republicans always crash the economy eventually. That is what every republican administration for the past 40 years has done. When will Americans wise up and stop voting for republicans? It's like they have amnesia and keep trying the same things over and over again that have been a massive fail. Know your history or you are bound to repeat it and here we are again, repeating history.
63
Since 70+% of Wall Street trades are based on algorithms applied by robotic traders, I asked my personal computer and my iphone what they "thought," but neither one said anything.
"Those who talk don't know, those who know don't talk."
Some will be surprised by tomorrow, some will say they knew it all along.
20
Okay, here is what I want to know. I am not an economist, but I know plenty of NYT readers are either economists or play that they are. Here is my situation: all my money is in my 401k, and all my 401k is in stock. There is absolutely no other way to make your money grow other than the stock market, so please tell me what to do with my 401k in the light of this news.
120
We have a recession every time a Republican occupies the White House. Then we bring in a Democrat to save us. Then Republicans get into power again and run up the deficit and crash the economy. When are we going to learn?
125
The US has suffered through 47 recessions. Every single one of these recessions occurred when there was a Republican in the White House. Republican voters seem incapable of connecting these dots.
244
The moderate growth (out of a devastating recession) over the 6 years prior to Trumps ascension to his throne was welcome to this economist; relatively few indicators were "out of whack" which signaled a continued long-run upturn. Now, with an imbalance in bond rates, low unemployment, growing capacity constraints, an irresponsible tax cut (during an upturn!!), shockingly over-valued equities with historically astronomical PE ratios, an emerging disruptive trade war, inept cabinet-level administrators, angry trade allies...
Everybody routinely dumps on economists for their attempts at predicting economic events, but when many indicators turn ugly all at once, it's hard for us not to at least give people fair warning that something unpleasant MAY be in the offing.
Tighten your seatbelts.
79
This economic crash is firmly going to be at the feet of these stupid GOP and there Russian leader. This five time draft dodger individual has been destroying the country and the world. Business leaders better have a meeting with these fools to stop the economic/ democratic destruction of the world.
Two thousand plus children missing what have we become in such a short period of time ? People in cages, children, babies snatched away, we have a monster of meanness in charge. Everyone except insane people love there children except Trump and the GOP. I pity the upbringing Trumps children had, a circus of meanness.
Complaining about Ms. Waters?, well the nastiness and dim lights starts from the top and Wall Street better start addressing not just the destruction of Europe but America. Otherwise there will be no elites of Wall Street. There will be no America and don't think the Russians are going to support a Wall Street concept .
Vote, march to save America from these tariffs that will only destroy his beloved base. After that speech last night the governor of South Carolina is a complete fool when the car industry moves out who will give jobs to those factory workers.?
63
A recession is the least a nation that puts its decision making in the hands of ignoramuses, oligarchs and religious fanatics should expect.
164
Isn't it a matter of time before the chaos of the Trump "administration" affects every single aspect of American life, including the economy? Of course, the Grand Old Party could have reigned in the dumpster fire at the top, but they are cowards, weaklings and just bad people.
50
"Yield curve"? If this is an indicator of a recession then the republicans might want to drag out the Laffer Curve or make new and even more ridiculous methodologies explaining how we can win trade wars without hurting the economy or how health and safety regulations aren't necessary because businesses prize their work forces so much that they will bend over backwards to protect them. Of course the republican base, as ill informed as ever, will buy it because they have in the past and they will in the future. I hope democracy and the economy can survive dragging around the 45% of the population that believes anything out of the mouth of a man whose relationship with the truth seems never to have existed.
41
The yield curve - means nothing anymore, as its a distortion of FED's QE.
6
The economy was doing well until the Trump tariff fiasco began. In Wisconsin alone, retaliatory tariffs are not only hurting Harley Davidson, now moving more of its production overseas, but the cranberry industry in the state, (Wisconsin is the largest grower in the nation) is taking a hit, as well as boat manufacturing, which uses aluminum and other products now being affected by tariffs, including other parts of the Wisconsin farming industry, now getting slapped with retaliatory tariffs from Canada. Our president is making terrible decisions because he basically doesn't know what he's doing.
69
The definition of the yield curve as "basically the difference between interest rates on short-term United States government bonds, say, two-year Treasury notes, and long-term government bonds, like 10-year Treasury notes" is not accurate.
The 2-10 curve is derived from the historical yield curves but it's not the same as the yield curve, i.e. a snapshot of interest rates for different maturities at a given point in time.
13
The article ends with a more optimistic quote from an executive at Deutche Bank. Wasn't this the only bank which would loan Trump money and is now part of the Mueller investigation?
74
Deutsche Bank was also investigated, found guilty and fined for money laundering.
53
We have a recession every 10 years or so in this country, although some recessions are more gentle corrections and some are deep and painful. Point being, it's just about time anyway for a recession, and it's not surprising that Trump will take us there faster, and more devastatingly, than expected. MAGA, y'all. Hope you're happy when your 401k tanks and you have no Social Security because Ryan and McConnell have stripped your benefits down to nothing.
61
Stock market crash; followed shortly thereafter by a housing bust..........yes, I do have an MBA in finance but it doesn't take a genius to realize America has been in the midst of "The Greater Depression" for over a decade.
40 million Americans living in poverty. For details, read the report of Phillip Alston, UN Special Rappotuer on Extreme Poverty dated 12/17 who was invited by the current administration to survey poverty in America.
https://www.ohchr.org/EN/NewsEvents/Pages/DisplayNews.aspx?NewsID=22533
28
You #StopTrump folks (the current business model of the New York Times) wish America would go into a recession. Because at this point it is the only way to not only win in November but to prevent Trump's reelection in 2020. Sorry, Warren Buffet and Jaime Diamond (who predict boom times) are where I am betting my 401k.
8
You are incorrect we do not ant the economy to tank. Doe not take an advanced degree in finance to understand the policies of this administration are having and will have a negative impact on the economy. The tariffs, the “tax cut” or reform that has no offsets- really not brilliant. Costs are increasing on gas, housing, oil .... It is not about Trump it is about his reckless lack of understanding of fiscal policy and how economies work.
32
Maureen-I agree. But, it's not just Trump's lack of understanding of economics. Lots of people lack that understanding. It's Trump's refusal to admit his lack of knowledge and take advice from people who know more than he does who could advise and guide his decisions. But, in his ignorance, he insists he can do it all alone, and the country will pay for his arrogance.
4
You think we don't care about a recession? You think we don't care about our families, about the future of our children?
29
In the end it's "the economy stupid" that guides political movements,
The recession should likely kick in nicely by 2020 and the era of Trumpism will be brought down with a thud. All the lies, stupid analyses, and pure hate will kick us all in the proverbial derriere, Not what we want and it will be painful, but better than going forward as an angry, isolated nation,
We'll hopefully come out smarter and stronger in the end and Trump's vision will be thrown in the trash as were those of other autocrats.
48
Gee, the rising cost of gasoline on consumers' discretionary spending is not even mentioned.
15
This statement is false! >>And if the yield curve inverts, it means lending money becomes a losing proposition.<<
Banks don't lend money at the risk free rate, but usually at swap rate client margin. It is true that the transformation margin shrinks, but the contribution margin makes lending still profitable.
PS: Net Interest Income = transformation margin contribution margin
4
As a whinging Aussie i have said before on these forums that there are some very troubling similarities happening at the moment that show more than a passing resemblance to the crash at the back end of the 20's and the start of the 30's. The rise of authoritarian governments, the impositions of tariffs and splintering of old allies and you have that buffoon in charge at a time like this, I'm going to start selling tin hats, who wants one?
64
Trump bankrupted most of his businesses and now he is doing the same to the country.
74
Republicans create recessions. Democrats fix them.
64
We knew the crash would come the minute Trump won the election.
41
There’s no surprise here. The Trump Administration is a rampaging elephant of chaos and toxic delusions. Trump Knows Nothing! Trump Cares To Learn Nothing! His deluded senior staffers aren’t much better: they Know Nothing, but want to Fix/Change Everything according to their warped Ideologies.
This causes what can only politely be called destruction, as he creates disasters out of nothing, tearing down and crushing all that once worked fine. Trump sees everything as something he can change because Obama did it differently. If Obama left it stable and healthy, Trump will declare it broken, and implement utter nonsense to “fix it” - while his Cult Followers cheer - and this Treasonous Do Nothing Congress sits on their hands and ignores, or weakly defends the Carnage.
“Asian Crises, Horrific Trade Imbalances with our Strategic Partners, Back stabbing Allies,” or a combination of all of them: Trump’s wading in and using twisted facts, outright delusional thinking, and “fixes” a century or two out of date, to impose his vision on a world that doesn’t need it. The US is now the greatest terror, the world’s leading destabilizing Force. There’s nothing Trump cannot or will not break - all the while blaming others for the breakage, and promising to “Make America Great Again.”
The World can’t take splintered alliances, and Tariff fueled Trade Wars, but that’s what their getting shoved on them, ready or not!
Congress MUST Stop This Insanity! The time for the 25th Amendment is now!
35
There is little evidence of a recession coming any time soon, but it certainly would be heaven for Democrats come November. The economy itself doesn’t seem to be cooperating, but perhaps if we keep talking up a recession it might have the desired effect. Maybe Maxine Waters could pitch in: “Recede! Recede! Recede!”
3
The last line says it all. Expect a recession.
13
Another Republican President, another recession. Big surprise.
And nearly every Republican President over the last 50 years has been worse than the one before. Wake up, people.
42
They forgot the other powerful signal: there’s a Republican in the White House.
26
so many other measurements say no recession but not mentioned i.e. maybe we can talk people into a recession?
2
As I read the article and the comments, I am reminded once again that economics is largely a "voodoo science." Each indicator, each prediction, and each theory contradicts the previous one. Everyone is an expert, and they all disagree. The economy is an enormously complex machine driven largely by human behavior (American humans as well as international humans). Throw in the effects of the odd natural disaster, war, or new technological breakthrough, and mix well with a whole bunch of random luck, get yourself a crystal ball and there you go: The Perfect Economic Prediction.
I'm not an economist (obviously), I'm a scientist. But I know that a healthy economy and a healthy society depend on a balance between consumer and producer, employer and employee, trading partners, etc. I also know that if you sacrifice long-term health, safety, stability, or natural resources for immediate gains, the bill will come due sooner or later.
21
Work Force Notes. Witness the world's richest country attack the poor: the government's detention of families facing non-state violence (rape and death) from gangs (growth Barack noted in his 2009 Nobel speech). America offering detention and separation to courageous families willing to work, who are saying, “we want to be--on your team!”
Workers arrive daily. Dusty, tired, slumped, meek, the women raped; families with courage and hope; their children not M-13; no Middle East terrorists found, mixed in.
Economics is an easy way to inflict abuse on communities with a narrative that says their abuse is in everybody's best interests. He is a favorite Trump technique. His narratives depend upon blame. Without it he has nothing to rail against.
We see imaginary objects of blame and fear reoccur: the reappearance of Middle Eastern terrorists crossing the Southern border with children; their first reappearance since the travel ban. No evidence or details presented--another Trump flaw. They lack support or truth. Trudeau dishonest? How? Exactly how is the world's largest economy, a victim?
15
The inverted yield curve precedes a recession by anywhere from 6 months to 2 years. Yep. The other thing that always happens is government power is handed back to the Democrats after Republicans have broken the economy. Compare e.g., the economy Clinton left W and the economy W left Obama.
34
Then the Dems fix the economy, the GOP says it can do better by low taxes and small government, and people with really short memories believe the "Free Lunch" stuff the GOP and Fox News spews, vote the GOP back in, and we go down the drain more.
15
Of course we are going to have another recession soon. Our entire economic system is designed for booms and busts. The Federal Reserve will continue to raise interest rates while wages remain relatively stagnant and that will trigger a recession. We have somehow failed to learn that in our attempts to control the economy, we are doomed to fail. This has been proven time and time again. The S & L crisis, the 1987 stock market crash, the dot com bust, the mortgage crisis, and of course the Great Recession which some people still haven't recovered from. It's just one long roller coaster ride.
15
We also need to ask who typically holds most U.S. Treasury debt and what that may signal for the future. It is not just what is going on domestically that we should be paying attention to when we look at the yield curve! The health of our economy doesn't operate in a void. As of the end of April 2018, approximately 6.17 trillion in U.S. debt- almost half- is held by foreigners. (see this Treasury Department table http://ticdata.treasury.gov/Publish/mfh.txt which reports these foreign holdings held by U.S. brokers-custodians and so may underestimate the total).
6
I should qualify that my statement "U.S. debt-almost half- is held by foreigners" excluded intragovernmental held debt.
3
If there is one ironclad maxim of economics, it is that markets hate uncertainty.
Markets meet the Trump regime.
39
“Sure, it seems like a strange time to be worried about recession.”
No, it doesn’t because election time is fast approaching. The Democrats, however, are not worried but just hoping they can take the issue of the economy away from Trump and ride it to victory.
Unfortunately there is just a little problem with timing which might well upend Democratic hopes:
“In the past the recession has come in as little as six months, or as long as two years, after the inversion, the San Francisco Fed’s researchers note.”
But then again it might not happen at all:
“ ‘In the current environment, I think it’s a less reliable indicator than it has been in the past,” said Matthew Luzzetti, a senior economist at Deutsche Bank.’ ”
Oh, well....
7
If we are looking for the next reason for the e on Oy to grow, why aren't we looking at massive infrastructure spending? It will goose the economy by creating high-paying jobs and create new pathways (railways and highways and bridges) for people and commerce so that we will have a functioning country in 50 years and not concede everything to China.
11
You Yanks vote with your pocket book. All the scorn heaped on the President comes to little by comparison. So regardless of how Trump stirs up his base, they like everyone else will desert him, the first sign of economic hardships. Maybe this yield curve thing is that sign.
12
If we really voted with our pocketbooks no one would ever have voted for Trump in the first place.
10
This is stating the obvious.
Until there is an increase in wages across the board so that more people can afford big ticket items--children, houses, automobiles, vacations--the economy as reported by any one index will not show its total self.
That requires a different tax structure, a different mode of government than we have at present, and a different kind of corporate investment--less for shareholders and speculators, less for lobbyists. And an economy that doesn't run on death and disability that war and war games need.
35
With the increase in the federal budget deficit caused by the tax cut long-term interest rates should be increasing. The yield curve should be getting steeper.
But that would cause the stock market to drop.
It would also depress demand for large-ticket items such as houses and automobiles, which would result in less jobs being created and depress wages.
It would also crowd out some private investment, which would also reduce job creation, labor productivity and wage growth.
It would also strengthen the US dollar, which would increase the trade deficit.
Could it be that the Fed, who was supposed to unwind its quantitative easing (QE) policy, has not yet done so?
Under QE, the Fed purchases US treasuries. The demand for treasuries increases, their prices increase, and long-term interest rates drop. The yield curve flattens. Especially so if the Fed is simultaneously raising short-term rates.
When the Fed sells its treasuries, as it was supposed to be doing, the supply of treasuries increases, their price drops, and long-term interest rates increase. The yield curve becomes steeper.
The fact that the yield curve is getting flatter is, to use the Fed chairman’s word, quite “puzzling.”
7
The Treasury needs to fund government spending at as low a rate as possible. Once they get this done in large part, the Fed can reduce their balance sheet which will cause long rates to go higher resulting in a more normalized yield curve. This will play out sometime this year.
2
There is just so much wrong with this article that it sounds like Paul Krugman on election night. See below for just one example: PDW
Los Angeles17m ago
The most accurate sentence here is the last one in the article. The long rate stays down because the rest of the world has negative or very low rates. This makes our bonds attractive, so much so that their rate stays relatively low. The long rate also stays low because of low expectations on inflation. Short term rates creep up because the Fed says so.
This is not the normal situation. Therefore, the premise of the article is mistaken.
3
The most accurate sentence here is the last one in the article. The long rate stays down because the rest of the world has negative or very low rates. This makes our bonds attractive, so much so that their rate stays relatively low. The long rate also stays low because of low expectations on inflation.
Short term rates creep up because the Fed says so.
This is not the normal situation. Therefore, the premise of the article is mistaken.
4
It seems that PDW in L.A. and Thomas J. Larkin (the comment above PDW have the same message - almost word for word. Odd.
7
No low yield curve in the bond market or any recession pointing indicator is enough to deter the Wall Street wheeler dealers and the financial market speculators from overleveraging and recklessness until the actual crash hits the economy and catches Trump and his advisers off guard.
18
If that happens then good night for the US. Trump has already expended his tax cut ammunition on paying for his reality show. Interest rates won't offer much room to help either.
That recession, when (not if) it hits will be painful!
Especially for the Trump voters in the Midwest.
That part of the country will be devastated.
22
Perhaps. But then Right Wing media will blame the Dems (minority for the last 7 years), and vote more GOP Congressmen in (if possible). The Right Wing does not examine facts when they vote.
6
Long term interest prospects are low because they reflect real low profitability as opposed to the one reflected by the fictitious and relatively high profitability of speculators, or short term one. The real economy, the one that produces goods and services is not doing well. We see the symptoms all over the place (trade war, right wing ascendancy, deceleration of growth and so on). The fictitious economy or the one claims higher profits on the bets of financial or rentier capital seems good on paper. However, those are only claims and assumed future profits (or those which have not yet been realized). The first one produces value while the second one bets on future value realization. Most of the time they agree, but there come the cycle every 10 years or so that they don’t. The difference this time is the House has bigger bets and speculators with larger pockets than in the past.
11
When economic "booms" such as this of the last 9 years line the pockets of the wealthy but leave the masses scrounging for pennies, there is no mass buying power to support further production. There is no incentive to manufacture products. The demand must come before businesses will invest in the supply.
The only way we've managed for the last 2 decades is by drastically reducing production costs by moving production overseas, to low wage countries. By depressing the costs of products we've been able to keep prices down enough for the masses to continue buying even as their spending power decreases.
But that only works for so long. Eventually people can't buy any more because their wages are stagnating, or the costs of production can't be pushed down any further using current strategies.
The only way to lower production costs more is to reduce labor costs yet more, by turning to robotics. But then of course, there is no buying power left to the masses at all.
32
Don't you love it?!
"It might be, but it might not be."
That pretty much sums up the article, a classic piece of business writing.
It brings to mind the immortal words of John D. Rockefeller (probably, though some attribute the quote to J. P. Morgan) when asked about the direction of the market.
"It will fluctuate."
10
Look out economy -- the curve is usually a good indicator of future events. It did when I was an active portfolio manager and it will now and in the future.
8
Well Trump's main raison d'etre was to undo everything Obama did - so I suppose a healthy economy was the next target.
77
The story offers a caveat noting that sometimes there was up to a two-year lag between inversion and recession.
Curious: Did the inversion persist for the duration of the lag in each case?
1
The article also ends by quoting "experts" who give reasons why the inversion may not be a good predictor this time.
3
My question was genuine and not rhetorical. Was just curious.
2
Imagine Trump trying to lead us out of a recession. Now that's really scary.
46
Thanks for scaring people.
Why not start a panic while you are at it.
What is the common person supposed to do.
We have no input on what the Federal Reserve Board does.
5
This is to a large degree Trump made. He is lighting the fuse of the powder keg with his trade wars. He has overheated the stock market with his tax cuts and when the inevitable crash comes there is no more room to adjust. We are out of ammo and we will be overrun.
That's what a depression looks like.
23
You're hosed on the 401K - that you just have to ride out and hope to retire on the next boom part of the cycle. But if you are in the market otherwise, start slowly selling some holdings and keep the proceeds in cash, so that you can buy some bargains after prices drop and ride the next stock market rise. Don't sell everything, and what you don't sell, hold through all drops in price. No matter what, don't panic and sell after the crash starts. That is the time to hold, no matter what.
4
John, where the stock market is concerned, you should always be plenty scared. They don’t call it the “Big Casino” for nothing. The common person is better off doing what our parent’s did... accept smaller interest rates, put your money in an FDIC insured bank, get rid of the credit cards and actually save money and pay cash for purchases. You’ll sleep uncommonly good at night, because you’re a common person, not a big investor with loads of money to insulate you from the whims of the stock market.
1
Wall Street is always sending out buy/sell signals. Now if there are mass layoffs, due to tariffs, and the housing market collapses, that would something to watch.
9
We know that sooner or later the SS Trumptanic would crash the economy from the stupidity and ignorance. Unfortunately we are all on the same doomed voyage.
37
Just as scary is the Congressional Budget Office's projections on debt held by the public by 2028, It approaches 100 % Gross Domestic Product. We will see the markets respond to this soon.
20
Why do folks keep voting Republicans in? Religion, fear, ignorance and race? SMH...what short memories we have!
51
Of course it's about time for another recessioin.
When the money finally starts trickling down to the poor, in an amount so meagre it's like Oliver Twist getting more porridge in the work house, it's time to have a recession.
And the arrrogant elites while away the hours sipping champers in the Hamptons and spitting in our eyes.
BERNIE SANDERS IS OUR MAN
21
The one thing that made me support Bernie Sanders is that for 30+ years he never flip-flopped on his beliefs of what to do for the American people (for the better.) His history is in direct contrast with most politicians and the president himself ... who changes his mind with a drop of a hat. Most opponents said that his positions could not be supported because of the cost. Yet, this country has all the money in the world to declare war and kill our future generations.
32
Sorry to correct your history, but during the 90s in Vermont Sanders supported the gun lobby and was rewarded by the NRA. He may be singing a different tune today but his support for firearm terrorism is why I will never support him.
2
Oh David, Bernie isn’t going to prevent a recession. A recession is part of the economic cycle, not a conspiracy. Economics 101.
5
We've been running on fumes for some time now. The massive and irresponsible tax cut helped to mask this, but the self immolating trade war will rip the cover off once and for all. He's not a businessman, but a con artist. Look out below.
62
"Only I can fix this" (a booming economy !)
20
Like all dictators, he will try to place blame on some group.
All traces of him, his endlessly grasping family, and corrupt administration must be removed. Except from history books. There they must remain as a warning to future generations of Americans.
8
Bottom line is that Trump will not in any important way better the American economy.
He has, however, conned those who believe in blaming boogeymen for any and all ills. This is why the market hasn't yet tanked.
Gordon Gecko had it right: greed.
20
This is how the dems will win in 2020. This is only way.
6
Obama spent eight hard years nurturing the economy back to present state. It is very difficult to mend something that is broken, needs accomplished people to understand the complexity (for something like our economy) and take complex actions. It is very easy to break it with reckless actions within an Year!
64
There is a recession coming but this time it is not correlated to an inverted yield curve.
The reason short rates are up is due to the Fed raising short term rates (Fed Funds) which directly impacts all short duration interest rates. Long rate increases are governed somewhat by what those rates are in other countries. Note that our 10 year T Note is already the highest of all industrial countries.The 10 year rate in Britain is 1.29%, Germany is .32% and Japan is .03%! The US offers 2.88% which 96 times the return one gets in Japan. It is not surprising then that when our 10 year treasury offers such a large premium to other G7 (are we still a part of G7 with Trump at the helm lol) countries that capital will flow from their bonds to our to obtain that extra yield. This inversion is not the issue.
Now, why we are headed for a recession.
We are 8 years into an expansion; all good times eventually come to an end.
The tax cut has prolonged the party which will eventually lead to a longer hangover. It has also weakened our nations' balance sheet.
A trade war is going to be ugly for industry in America.
Program trading is too big a part of overall trading and no matter how many 'circuit breakers' we have on our markets, the impact of this phenomenon will be larger than ever next time we have a market swoon.
Rolling back Dodd Frank and other regulation too far will expose our credit markets to another taxpayer bailout - which will further burden the next generation.
64
I wouldn’t worry about this. We’ve been seeing very slow GDP growth – around 2-3% per year since the dot-com bust. America had much higher growth rates during the 20th century. What has happened is that expectations of slow growth have settled in and that’s why long-term interest rates haven’t risen much. But, the recent past is not a predictor of the future. If GDP picks up to 1980’s levels again, long-term bond investors are going to get hosed.
1
Will our president be as willing to take credit for a recession as he was to claim credit for a booming economy? He's certainly done enough to upset a lot of apple carts. Trade wars are certainly not the way to preserve a booming economy. Unless, of course, the boom is an explosion leaving millions dead or dying. As part of the recovery ought to include rising wages, but hasn't to any meaningful extent, imagining that American consumers can keep the wolf from the door is folly.
20
For an international take on yield curves, this is what Lakshman Achuthan has up on his website. He disagrees that yield curves are highly predictive. He says they are somewhat predictive.
https://www.businesscycle.com/ecri-reports-indexes/report-summary-detail...
That said, he is in the slowdown camp. The question is whether the Trump tariff threats are seen as real as in permanent -- a big thing for supply siders -- or as some kind of game theory whatever. (Someone on CNBC actually said that Trump understands game theory. Let's stipulate not the mathematics.) Obviously, if they are permanent, they will have a notable impact, but remember, trade is not a huge part of the American economy, which as these things go, is relatively closed, given the nature of our geography. In sum, expect the U.S. economy to slow down, but not in a way that should be clear to voters in November.
1
No need for alarm bells yet. Of course there will be a recession in the future, just like death and taxes. But first, it could be another year before the yield curve inverts, and then it typically takes another six months to two years following that when the recession comes, so we are likely at least one to three years away from a recession.
4
Suppose things are different. Flat, similar rate, long and short term rates says homeostasis (or stagnation). Growth crawls, it’s barely growth. What if we approach a new normal. Maybe the future isn’t recession but more static.
1
Despite the utter devastation another recession would bring to untold millions, there are also millions who greet this news with hope and glee. You know who you are.
9
Coming up next: America stabbed in the back by cartel of evil bankers deliberately tightening credit.
(Freely translated from the Hungarian.)
7
When Wall Street is concerned you know America is in trouble. It would seem those gigantic tax cuts and the removal of all those banking/financial regulations don't look so good now.
24
Attack and debase the judiciary. Rile up irrational fears about crime and immigrants. Pass a tax bill that transfers even more of the wealth of the nation to the top 1% and permanently ensconce them at the top. Bungle in to an international crisis of our own creation (eg North Korea injuring brittle egos). Foster an us vs them attitude on the back of hyperpartisanship. Wait for the economic collapse and resulting unrest. Declare martial law. Fire Pence and appoint Ivanka. #winning
26
In addition to bond yields, we're also facing higher prices and job losses due to the new tariffs, and a massive budget deficit due to the tax giveaways to the rich. There is a real threat now of a recession due to these failed economic policies, and a limited ability to deal with the outcomes due to weakened reserves. Trump could not have put our economy in a worse position.
21
One thing to consdider: roughly a third of Americans are Democrats, who are currently panicked by White House policies. Some liberals appear to be hoping for a recession to take a bite out of perceived popularity of the Republican party and the Trump presidency. If 95% of Dems (Gallup) are concerned about Trump's policies having a negative effect on the economy. According to Pew, 33% of American registered voters (let's say, 25% of the working population) are Democrat. If we further assume that a large chunk of this population either expects or hopes for a recession - well, that's a lot of consumers with little faith in the ability of the market to, say, withstand multiple tariff spats with our biggest trading partners and keep drawing people back into the workforce. Further, jitters in the world economic system caused by these trade spats seem likely to destabilize the bull market further.
Aha! Blamedemocratss! Is that what passes for strategy among the right wing of today?
15
Even the most fervent Trump lovers in America will be affected by these stupid policies.
8
It is in Putin's interest for the US. to face financial difficulties and become weaker (and have fewer allies), so it is no surprise that Trump's policies are designed to accomplish that aim.
43
I fear the next one will be a depression thanks to the magnitude of misguided machinations of our out of touch President.
22
To paraphrase, "When recession comes to America, it comes wrapped in the Flag and waving the Bible."
54
...and holding a gun
20
The curve now and the past few years is very different from before because the U.S. never had such low Fed Funds or a quantitative easing program.
The front end of the U.S. gov yield curve was held down by fed policy. The back end should more reflect gov borrowing and expected inflation. This too was distorted by the quantitative easing program.
So from an economics/econometric viewpoint there was structural change/external distortions in the yield curve that need to be accounted for before one makes predictions.
From a more practical issue of what could cause a recession is that normal trade flows are interrupted by government policy. Even if a truce is declared, the distortions might be permanent. For example: after Harley moves a part of its business overseas, most likely it will never come back. Although they say it is due to tariffs, I would not be surprised to find out that the new plant is non-union/lower cost.
9
Yield Curve. Can't help thinking Donald Trump has no idea what that means. However, I'm sure after he's had someone read this article and explain it to him (realizing this businessman has been a fail too many times to think he ever really got this stuff) the bond market will have an effective goose after midnight calls from the White House. Icahn likes bonds more than aluminum, no?
Insider trading, controlling the market? Nah, it's just the president of the United States staying alive.
14
When Wisconsin dairy farmers start dumping their milk into the ground because there is no market for it due to high tariffs, you may be in a recession.
28
A year a go there was a drum beat of "Trump impeachment" and stocks just kept going up. Now a year later it is 'recession signals'. Majority of the country gets it. The ability to predict elections or the economy with any accuracy is worthless. Some of the predictions is wishful thinking. Many evil spirited Americans are hoping that America goes into a recession, then Trump will not be reelected That does not mean anyone should be complacent and not diversify their investment portfolio. Stay put and don't believe everything that you hear or read. Life goes on. Don't worry be happy.
8
On a Department of the Navy assignment for 4 months shipyard exposure --- from NAVSEC home base in Hyattsville, MD to Long Beach, CA, in 1971, I was introduced to the expression: "Hang Loose; Whatever Happens, Happens!"
Hanging on to that thought over the years, as well as "Patience, and shuffle the cards." --- Have kept me smiling, as winning and losing on a regular basis have led me to enjoy life's challenging games!
When you let a four-year-old take the wheel of a car, you don’t want a wreck, but you’ll probably get one!
11
A depression that flushed the feckless demagog might be a good deal compared to what might otherwise ensue. There are worse things to fear than being broke. Look to our southern border and consider the rear view mirror that makes them willing to risk so much.
2
One of the lessons from Pickettys's work on income equality, is that most of the modern economic theories of last 60+ years use the data since WWII to make their case. However, the period after WWII was an exceptional time which USA had no competition as world economy including European economy was in ruins . USA then used capital and full employment to rebuild Europe and world economy without any competition from any where. It is not a surprise that the wages went up and economy boomed in which capital and labor interacted in an exceptional way. That is not going to repeat.
Picketty indicated the growth rate experienced in USA during that time was an exception and not the rule. We will have to wait until we have new theories that will take in account global factors in which billions of people will be competing for work and capital (due to income inequality) is plenty. Until then we should recognize that most of the predictions made by the economist in general have failed and will continue to do so. May be Piketty and his team might be able to help us in future.
12
The US, riding the wave of 2008 to now, is currently in the second longest expansionary period in U.S. history. Only one expansionary period has been longer: the period during the 1990s when Clinton was president. Given the incompetency of this current administration, I'd say we're just about due for the next recession.
The really TRULY worrisome thing is that with short-term interest rates being as low as they have been over the past decade and with tax cuts already in place, what does the Federal Reserve and government have left in its arsenal to be able to combat the next recession if it happens sooner than later? That's the real reason Powell has been raising rates; the downside protection of cutting interest rates again might be needed soon when the next recession finally hits.
32
The recession would be under way already if it weren’t for the blind hope that trump is a chimera and will soon depart the scene.
As it becomes clear that we’re deeply stuck in swamp-trump, the money will go looking for a safe silo to wait out the coming debacle.
18
Looks like Trump critics are doubling down on predicting economic calamity now that post election night predictions of horror failed.
Most troubling is the language used by leftist critics on these pages; raging on about bad rich white 1%ers, banks, the unfairness for the poor, the depraved ignorance of Trump voters etc..for Hugo Chavez talked very similar language in his rise to achieve stunning success in leveling economic wealth for all.
5
Look for the grain of truth you find in these comments. Republicans make choices that tank the economy, and Dems pick up the pieces.
41
If you look at historical patterns, this does seem to be the case.
1
So what about these issues? Rising inequality and poverty while the 1% get richer and richer? Are those of us (99%) who are being fleeced supposed to be happy?
8
Trump has already declared “Trade Wars are good” and his base nodded with enthusiasm.
Coming soon from Trump - Recessions are good! As he gaslights America.
59
But of course, it's all Obama's fault! Or Hillary's fault! Or Chuck&Nancy's fault! Or the Lying Media's fault! Or Harley Davidson's fault! Or Mexico's/China's/Germany's/England's/France's/Canada's fault! Or NATO's fault! Or Elizabeth Warren's fault!.....
80
It if the fed is responsible for raising short term rates, isn’t the yield curve problem moot?
2
Sure, except for historical evidence (which is of course no predictor of future performance, as they do say).
4
Thanks name, maybe I’m just hoping for a way out of the next one.
What goes up, must come down... simple as that. Our economy has been growing for what, 9 years now? The next recession is coming, no doubt about it. Nobody should be surprised.
15
It is not inevitable. Australia has not had a recession since 1991. Over 25 years. Recessions are not inevitable. Trump is ruining the stellar economy handed to him by Obama.
45
I would suggest that they are inevitable for the largest economies. Smaller ones can sometimes shelter due to unique circumstances, but the big guys not so much.
Is this surprising? If there is anything Trump is good at, it is driving companies and countries into bankruptcy.
The tax cuts, corporations used that to buy back stock, which drives up the stocl price. Executives and corporate insiders have a waiting period before they can take profits on their own stock from the price increases due to the stock buy backs.
I have not seen any article on how many executives have sold stock once that period was over, including Trump. Who is monitoring Trump's stock portfolio sales?
The really sad thing is that the US economy is a slow motion carwreck and you can see it coming and it could be prevented by not taking any of these economic actions that Trump has done. But Trump literally is a drunk at the wheel of a car, the US economy and he will most definitely crash, the question is when?
44
And WHY have we stopped demanding that Trump
make his tax returns public?
21
https://fred.stlouisfed.org/graph/?g=kgvT
January 4, 2018
Interest rates on 10-Year, 5-Year and 2-Year Treasury Securities, 2015-2018
4
The Economists and this administration are ill equipped for an economic repeat of 2008, beware America.
27
Do we have any will skills and experience and KNOWLEDGE?
2
While the “economists” give us more hocus pocus, there is one thing of which we can be sure in this age of advanced predatory capitalism, the rich will get richer and the poor will get poorer (or locked up).
29
While everyone's been lost in an orange fog, the Fed has slowly deteriorated. The seven members of the Fed board are Powell, Quarles, Bainard and four empty seats. The brain trust is severely drained, and no help seems forthcoming.
Coming out of the great recession, the Fed has $4 trillion in notes and bonds on the balance sheet. This gives them unprecedented influence over longer maturities. If that's not enough, a trade war will undermine the market for long debt. All they need to do is pay attention and temper their discount rate adjustments and open market policies accordingly. If the curve flips, it will be a self inflicted wound.
7
Everything is a self inflicted wound. Capitalism, too lightly regulated, relying on greed as a guide - of course that monkey fist gets stuck in the cookie jar.
13
A recession is signalled when short term rates are unusually high. In this case, long-term rates are unusually low.
With quantitative tightening, this situation is unlikely to last for long.
3
We live in an economically and morally boom and bust era. The supersizing of tax for the 1% while relegating the middle and low incomes of this country to increased poverty will lead to a new class warfare that the recession will not halt. Most middle and low income people live by cash. The 1% live with promissary notes on the backs of the middle class. What will happen when those notes are called in? Trump's wishes for a tiered aristocracy will crumble and his pathological self with be revealed along with all the double dealings of his cronies. Bring on the recession, bring on the change that removes Trump and Makes America Proud Again!
36
The key phrase here is “ traders are concerned about long term growth “. Really, so this is why they get the big bucks, a monkey that’s been paying attention to the manner in which our economy has been supported by financial engineering and creation of companies with short term usefulness at best or long term “ disruption” at worst, as opposed to creating a real economy, real companies making products people want rather than hype, all supported by infrastructure and a tax base capable of carrying a nation into the future rather than signing IOUs while pretending inflation and a fiat currency will bail everyone out. This is Milton Friedman economics from its beginning in the Seventies to its not so distant end; those clever or crooked enough to use OPM and leverage when things are good and have the ability to walk away leaving others holding the bag when things blow up have done quite well these past forty years, those who attempted to play by the rules have not done well at all. The traders see a day of reckoning on the horizon and it won’t be pretty.
13
“A Powerful Signal of Recessions”
Crash, baby, crash. 10% unemployment is the ONLY thing his followers will understand.
21
Either that or more opioid crises....
4
If you want 10% unemployment get Bernie elected.
One element that wasn't a part of the last major recession was the effects of climate change, which are currently excellerating.
Extreme heat, droughts and increased damage from violent storms and floods will greatly add to the misery this time around.
34
Accelerating.
8
Full employment and trade wars will lead to higher inflation.
Unfunded tax cuts for billionaires will leave behind a huge deficit forcing interest rates up. History shows rising interest rates are bad for the stock market. Sad thing is maybe America needs a recession to purge the country of Trump and his right wing extremist supporters.
51
The "unemployment" statistic is completely meaningless. McJobs do not support families or pay for school...
87
I was predicting WWIII in 15-20 years.
Then the US got the DTs - and I moved my prediction closer - to 10-15 years
having studied history at uni I suspect major recessions have tended to precede major wars, e.g. 1930 depression, 1939 WWII
so the major risk of the next major recession is if it is followed in the next 10 years or so by WWIII.
I'd start checking whether DT has shares in the military-industrial complex - not only in the West but also in Russia and China as potential adversaries.
18
Perhaps this is more of Trump bonding with his base.
20
Well, I guess we'll just have to cut more of the taxes of the wealthy and slash Medicare and Social Security to all those good for nothings to make America great again.
64
I wish prediction of a recession was this easy. Economists and the Federal Reserve have predicted the last 20 of the 5 recessions apriori.
Our conservative friends were phoophoing the BLS unemployment number post 2008 recession when the economy was gaining track over the years. I could not convince the Citizens on the Right of the improving economy. Now the same Right side of the spectrum are jumping and gloating over the BLS and stock market indices. Most of the popular comments are in a similar vein.
Unfortunately, the gulf between the Right and Left have widened and if so "Never the twain shall meet'?
8
One significant difference.. in 08 there was stimulus $ and years of quantitative easing..the only stimulus since election night is Trump. Check the graphs.
4
This all just part of the Plan. First the big tax break, then the tightening of the belt (entitlement reform) , and then the next recession so they can change all the labor laws, and lastly the snuffing out of democracy all together. Just like Turkey!!
48
As they pick up the home foreclosures, bankrupt business and failed family farms.
Both things Trump et al bragged about doing previously.
19
The GOP voters and elected officials will only step away from the very stable genius cult leader they are currently enthralled with when the economic hard times hit. It’s all about the money.
We needed tax cuts for corporations and the wealthy like we needed holes put through our heads. And trade wars with allies are foolish as many people will soon discover.
At this point, given the worldwide wreckage that Donald is wreaking, it cannot happen soon enough. And all of you elected officials who have so enthusiastically lined up behind a belligerent kit grabbing know nothing, I hope you get voted out.
39
I wonder if, when the US crashes, the EU and our other former allies will send aid teams to help the poor and displaced? That will be the final humiliation, will it not?
4
Wish I agreed. But false pride is very much a part of their psyche. When the economy crashes, they will find a way to blame it in the Democrats, regardless of any amount of evidence. Thank you Fox News.
16
Seth Klarman, media shy manager of $30 billion, predicted this in so many words in January 2017. He did not say the yield curve would conflate. What he did say was that the markets do not like volatility and Trump is volatile. At that time, one-third of the $30 billion was in cash or cash equivalents. Marc Cuban makes no bones, he is 50% liquid.
25
The ingredients are in the bowl. A 25K Dow. Deregulation of lending practices. Credit card debt at record levels. Add a generous dose of presidential incompetence, a trade war with our friends and especially our Chinese sugar daddy, then serve with a garnish of greed that would cause Gordon Gecko to blush. This next one is closing fast and it will be ugly!
75
Guess what folks, 'you've been fooled again'. More than four trillion in 'quantitative easing' was pumped out by the Fed to bail out the results of malpractice by the Wall Street bankers who gambled recklessly. Money is like water, dump it in to solve a problem, and it eventually flows everywhere. You have seen it before, it is called massive inflation, which seriously damages anyone working for a wage or on a fixed income. So the Fed is trying use the towel of higher interest rates to soak up some of that money to avoid a massive inflation. Couple this to the insane GOP/Trump tax changes, which basically says we have chosen to run huge national deficits for a decade, which will require massive borrowing, and you have created where we are now, 'between the devil and the deep blue sea'. 'Those who don't understand history are doomed to repeat it.' - George Santayana
38
Somehow the President will manage to blame Hillary for the next recession.
59
And Obama, and liberals generally. Being Trump means you simply never say you're sorry.
He obviously has no comprehension of economics, he's impulsive and not inclined to listen to experts. What could possibly go wrong?
19
Economic policy is like steering a car but only being able to turn the wheel 45 degrees. The danger is always oversteer.
Fed has actually had policies in place to keep long term rates low because of fear that LT rates will take off (buyers disappear). Fed has big inventory of bonds bought during post-crisis period (quantitative easing) which they could sell, would jack up LT rates right away. The fear is doing so will slam brakes on economy. Putting in place tax cuts (heating an economy that is already somewhat overheated) was foolish of Trump. Tariff war also goofy. Puts more pressure on natural long term rates (slow down economy, but keep activity high via tax cuts, thereby putting pressure on federal debt, rather than use the money to invest in transforming workforce to future economy).
Fed is worried if it sells some of LT bond inventory, yields will take off. It’s like the car is about to drift into the median. But if you steer right, it might run off the cliff. And trump is making the shoulder narrower.
19
"Sure, it seems like a strange time to be worried about recession. Unemployment is at an 18-year low, corporate investment is picking up steam, and consumer spending shows signs of rebounding."
Don't recessions *always* happen when the economy is strong?
It's not surprising at all, though, and was predicted. There is so little additional upside in the economy, at least as far as employment is concerned, that it has no place to go but down. How much a particular president affects an economic trend is an eternal question but the data show that the US economy has performed better under democratic administrations than republican.
23
NYT should probably stick to bashing Trump. The yield curve is not inverted. There will be no recession in the next year. There will be a recession in the next couple of years, because the Fed intends to continue to raise interest rates. When the yield curve actually inverts, that will be when real business publications publish articles on this topic.
3
Time for everyone to drink the kool aid and put on the rose colored glasses. Then you will see clearly how great this is!
9
This article has a serious flaw by asserting that the unemployment rate is the lowest in 18 years.
According to the very stable genius in the Oval Office, the current unemployment rate is the lowest ever in the history of this country.
37
Flat yield curves are a sign of fear. It suggests investors believe they can earn more through short term bonds than short term investments, it signals a move away from risk.
In two of the last three quarters, GDP growth was half of federal debt growth, in essence we are stimulating the economy but it is only growing at half the rate of stimulus and the private sector is shrinking.
What do we call a shrinking private sector? A recession.
But this time, how do we cut Fed rates or taxes to stimulate the economy?
17
Uh oh, here comes the trickle down!
21
So a bunch of conservative Republican white guys caused the last melt down, like they always do. A liberal guy had to come in and fix the situation, like they always do, while the white republicans pouted, kicked, and whined the whole time instead of helping. Now it appears that in little over a year another privileged white whiner is set to flush the whole thing down the toilet...MAGA suckers! Too bad you’re taking everyone else down with you.
86
*And* they're kicking out all the safeguards from under the regulatory framework that was designed to prevent a recession like the last one. Which is what republicans also do, even when there's strong evidence that it's dumb. But dumb policies don't hurt the wealthy.
43
Bill Clinton was white, sure, but a "conservative Republican"?
1
Don’t worry, you know Trump can alone fix the economy.
It is going to be beautiful.It will be the best of economy you have ever seen
It will be so good you will be tired of good economy and ask for a break which he will gladly provide you with. You see if there is a recession it will be of your making.
32
Fake statistics. Just like the unemployment numbers.
Trump told me unemployment was 20%, 30% no 40%.
It's on the internet, he said it.
And the election was rigged.
And 3,000,000 illegals voted for Hillary.
So I believe President Trump.
Clear skies for as far as statistics and the eye can see.
Just look at the record Dow Jones Average today!!!
OOOOrah
16
Trump used a rather crazy set of data: Take all workers, subtract people working part time for economic reasons, and divided that by total civilian population survey.
BTW, do you know what you get if you do that now?
41.53%.
8
The indicators of a coming recession are in the policies of this administration. Trump has no idea what it takes to bring an economy back rom the brink. Obama did.
First, the huge untimely tax break was very poor judgement. We should have been investing in the forgotten crumbling US infrastructure. Next, Trump started a tariff war, which likely has global and stateside businesses pretty anxious, yet we see little affect on the stock market. The financial sector is trying to keep a lid on it and this administration is trying to soften the effects, but do not trust them. Do not trust the stock markets. The insiders will win that every time. Get out, Get out!
27
I have been hoping the inevitable crash would come while He Who Has Caused it, is still in power. Otherwise the Dems, who just may succeed to supplant him in the next election, will be blamed just like they always are when they inherit a catastrophe, and the credit should they turn things around, go the the GOP.
The free market moves fast. Supply chains are being reconstructed around the new realities faster than Trump is working to destroy them. The free market rules and Trump will not be able to pardon himself from this wreckage. Bring it on.
30
My entire life has been one big, long recession.
28
David, I know the feeling.
12
As soon as I rest up and catch my breath it happens again.
10
Hang in there, guys. With this monkey at the helm, things'll get worse.
1
Great article and analysis, however, none of the graphs actually show what the yield curve is. I find this much more intuitive to teach if you show 3 graphics: a "normal" yield curve, a flat yield curve, and an inverted yield curve, all 3 with yield on y axis and maturity on X axis. I think that would make it graphically much easier for readers to understand what you're talking about.
14
Exactly. Watching a time series of spot yields doesn’t illustrate the relationship between yield and maturity, nor does it show the reader what “normal” looks like. We are dangerously close to inversion of the curve, which only ends in degrees of “bad to less terrible”.
And for those who fault QE, there’s no externality there-cheap money has been known and factored into prices. The question to answer now is, “What is changing?”, and the answer on the Street is always, “Expectations”. That alone should give us all a lot to think about.
7
He who claims all the glory (whether earned in reality or not) should have to wear the sack-cloth and ashes of the market blowbacks which are occurring as a result of his flawed actions to fight all comers with false claims of unfairness.
In fact, several moves are already impacting the US cost structure negatively arising from reprisals by a wide range of other countries.
14
If a recession comes you can blame one guy. No need to spread the blame, Donald Trump has gone out of his way to test the limits of this vibrant, robust economy, given to him by the outgoing previous president.
48
I am not an expert but I do know how to use some common sense. As much as i dislike trump I would stay in the stock market if he had shown some evidence of stability and planning. Instead he has put us into ob ver a trillion dollar of debt, insulted our allies and started a stupid trade war with the world. So, I took it all out months ago and can now sleep at night. A sensible person would not invest in anything with this crazy impulsive man in charge.
43
NYT business section is only now addressing this? CNBC got on this about five weeks ago, as did other business news organizations. Hmmmm . . . .
8
The Fed's b/s is >4T...never has this been the case as we contemplate the shape of the yc and it implications. Every T is about a 25 bp ease in fed funds...so, 2/10s is already inverted by 75 bps.....now - bake in Japan and the ECB. Strap in.
1
Should I believe this or is this misinformation to make Trump look bad. It's hard to believe anything anymore.
Here's a thing you can do: check multiple sources and actually do some research. Also, Trump doesn't need any help making himself look bad. This is what I don't understand: how can there be a "conspiracy" against him when all you have to do is look at his words and actions to see what he is--no spin required.
6
It's 100% true, but not 100% accurate or predictive.
2
Well, for starters, the data cited is from the Federal Reserve and analysts at several respected investment firms. Also, you have access to Google and can presumably type "yield curve" into a search query to verify the info for yourself.
It's really not that hard to separate fact from fiction, IF you're willing to do a bit of your own research and don't simply accept what you're told only when you like what you're hearing.
25
The U,S. economy runs on unsustainable big business models, the exploitation of workers and natural resources, corruption, ruthless inequality, corporate cronyism, and elitism. Why should we worry about a recession?
15
Not to worry though. If indeed we are in for another ride similar to 07-10 we now have protections in place from the lessons learned during that hard time.
Oh that's right they were "job killing" and rolled back by a Wharton school "grad" and his minions.
Vote!
29
Santa Claus has left the building, for everyone NOT RICH. The Grinch has moved in, and His Crime Family is keeping ALL the money. Seriously.
29
“It’s very hard to see what’s going to goose the economy further from these levels,” Ms. Gibbs said.
Hey, CEO's: Instead of buying back stocks, maybe increase salaries. It will help you hire people away from other companies in your industries, AND people will have more money to buy your stuff.
It will only get worse with all the mergers of businesses that are happening decades after the corporate breakups when monopolies were a bad thing.
13
Every single Republican president has started a recession, those records go back to the recession of 1895, and that is a fact. And it's because of their fiscal policies that plant the seeds of a recession. And it takes a couple of years for the seed to take root. Trump has sown the recession seeds and is watering them with his trade war, that he, and his followers seem to think they can win (they can't) yet he pushed forward.
http://fortune.com/2014/07/29/economic-growth-democratic-presidents/
http://www.nber.org/papers/w20324?utm_campaign=ntw&utm_medium=email&...
Study regarding the economic policies and why repbulicans sow the seeds of recession.
18
Interesting . . . . but wasn't it Democrats who started deregulation even before Reagan took office? Wasn't Democrats who put into policies that allowed the S&L crisis? Wasn't it democrats who loosened Glass Steagall that sowed the seeds (ie bank playing casino in deals they couldn't have done had Glass Steagall been in place) of the Great Recession? So, please, come on: can we agree that bad economic policy-making is bi-partisan?
1
Did you read the article? It says, "Democratic edge stems mainly from more benign oil shocks, superior TFP performance, a more favorable international environment, and perhaps more optimistic consumer expectations about the near-term future". That is, it has nothing to do with the president but items not under their control. Further, they do not show recessions under Republican presidents but rather that GDP growth was lower under Republicans than the Democrats that followed them.
2
When the inevitable recession happens we will be stuck with a president who has no clue and no credibility. We should all watch for when the Trump family dumps it stocks.
15
"In other words, there’s a reason to look at the yield curve skeptically, despite its prowess at predicting recessions."
Ok. Actually not ok. The Animal Spirits described in this book of 2009 (How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism)
(George A. Akerlof and Robert J. Shiller) clearly identifies the herd mentality generated by fear in the stock market.
Hang onto your Wallets!
8
The yield curve is evaluated in light of experience of past numbers and past economic events following those numbers. It is not proven there is a causal link, just shown as predictive.
There are some new factors in the yield curve. A big one is the huge amount of overseas money being parked in these securities, and the prediction of the movement in currency values while it is so parked. China was never this rich before, nor Germany so over flush with cash lacking places to park.
The dollar is very strong right now, compared to those who are parking cash in it, and there is reason to think long term economic and political pressures will force the Chinese to allow their currency value to rise. The Euro too is down, and the German part of it is especially likely to rise no matter how they work that out.
We'd see this same pattern if long term dollars were likely to see strong appreciation in amount of yen or German money they'll likely get in 10 years. The dollar just won't be higher then than it is now in comparison to those two.
5
Fake news
Only good news - that is attributed to our benevolent leader - is real news.
The liberal media is on the attack again.
Oh wait. The demand curve is generated by free capital market data.
How are we going to spin this? Can’t wait for the tweet.
But I really hope the data is not a leading indicator of a recession. As much as I despise this administration, big failures (and there are many) end up hurting all of us.
16
Unstable president and unstable administration--it doesn't take a rocket surgeon to predict unstable markets.
23
'“In the current environment, I think it’s a less reliable indicator than it has been in the past,” said Matthew Luzzetti, a senior economist at Deutsche Bank.'
I think the captain of the Titanic said something similar in the presence of all those icebergs.
21
Also, it may be important to remember, 'Deutsche Bank was caught red-handed in a money-laundering scheme that involved $10 billion in dirty money from Russian oligarchs, and in 2017 it was forced to pay fines totaling $671 million to New York’s Department of Financial Services, Britain’s Financial Conduct Authority, and the US Federal Reserve. Second, since the 1990s the German financial colossus has been Donald Trump’s personal go-to piggybank, which has supplied Trump and his companies with a staggering $3.5 billion in loans and loan-guarantee agreements since 1998.' (per https://www.thenation.com/article/maxine-waters-connects-the-dots-on-tru...
15
The first time economic policy, well all policy actually, has gone straight from TV commentators to the President's pen.
7
Trumps behavior has often been compared to a spoiled child having a tantrum. But in the past few weeks, it is more like a spoiled adolescent burning down the nursery. He is destroying everything. Tha man is a walking nuclear weapon.
65
It's just time for a recession. My personal predictor is the cost of race horses. By that metric, I'd predict a recession in the next 12 months.
11
Trump likes to claim the economy is booming because of him, despite scant evidence. But just watch, if things go south, you better believe it'll somehow be Obama's fault.
50
Trump did not cause the boom. He does cause Democrats to hope for and predict recession.
2
Or Hillary's. Lock her up! Yes the ignorant base will follow him all the way off the cliff. But the greedy rich Repubs who support him won't. If they start losing money, he is toast.
5
So basically investors paranoia drives the peoples sketicism which drives more investor paranoia. Seems like we would have this figured out by now.
I thought the information age was supposed to usher in more intelligent decision making.
3
For a Wharton Business School graduate, Donald Trump seems shockingly ignorant of the basics of economics. However, he is good at bankrupting businesses.
51
Each time he bankrupted a business, he walked away with all the money, and tax breaks for the losses too. That is the school of business all right, and very much like the vulture capitalism of Bain Capital that made Romney so much richer.
37
He went to Wharton undergrad for 2 years, not the graduate school.
3
T-bills and bonds are nothing but a simple equation. You're betting present against future value or vice versa. If you think long term growth is stable, bonds should win over t-bills. If you think the economy is going to tank, t-bills should win over bonds. We're dealing with a very basic form of risk management. Bet short when facing uncertainty. Bet long when things are looking up. The yield curve is simply the ratio between these two forces. Wasn't anyone paying attention in economics class?
The market mob can certainly rinse and repeat but you shouldn't see a four year trend based on individual vagrancies. Faith in the long term yield is legitimately diminishing.
Similarly, the Fed has a hand. However, you have to remember monetary policy was over extended due to fiscal anemia. I'm looking specifically at Mitch McConnell. The Fed was clawing the economy off the floor in light of deflationary pressures. They certainly have a hand but their hand was only pushing the money supply up until very recently. Again, you shouldn't see that steady decline over years.
Nothing is certain yet but there is very good reason for concern. No economic experiment has ever happened the same way twice. If I had to guess, we're going to invert the Phillip's curve again if something doesn't change sooner rather than later. As we learned the hard way, inflation and recession can exist simultaneously. The yield curve along with the Fed both point ominously in this direction.
15
Trickle Down Tax Cuts for the Rich.
Healthcare and Social Security Cuts for everyone else.
Of course we are headed for another great recession, more likely another great depression. Just what the Trump supporters wanted, right?
38
Worth noting layoffs are up, my personal canary. Not good when people don't have enough money to drive a consumer based economy!
14
Trump and the Republicans in congress punched a gigantic hole in our country's budget with their tax cuts in order to provide comfort to the rich as well as large corporations (primarily benefiting the richest Americans again). The building of personal net worth for the wealthy does little to stimulate the economy. Now Trump, enabled by his Republican colleagues, is essentially imposing tariff taxes on average Americans, which will hurt the economy and jobs.
Instead of the above reality, we could have done NO tax cuts and spent that money on fixing our country's infrastructure. That would have been good for business, it would have created more good-paying jobs and it might have even paid for itself with more tax revenues and improved productivity. But no, we now face a potential recession and the tools to dig out of it will be very limited due to reckless policies of the past year and a half.
49
China is dropping US holdings. Russia trashed over half of their US Treasury bonds. Tariffs are hurting the economy. Trade deals are nulled by Trump, and his tax cut will be a pig in a poke before this is all over. So let's just add one more sign that a major Depression, perhaps globally, is on it's way.
20
I might have more T bills stashed away in my basement than Russia sold... Could there be another reason behind it? Investors often sell when they are short of cash.
I don't know, maybe we shouldn't have given all the money to rich and corporations who won't use it for anything other than paying off mistresses and stock buy backs?
Maybe we should have thought about this interest thing while using tariffs to increase prices and adding taxes to the Internet after reducing SALT deductions.
19
Offshore accounts are the vogue
Ask the Her Highness
First
2
This strong economy belongs to Obama.
Trump was the candidate who said something about a "negative gross national product" or something like that. It doesn't exist of course.
Trump is not a business man. He is a con man. I have no confidence. He will trash everything and blame everybody else. This is who Trump is.
155
True but it’s still food for the troops.
9
Bigly sad, you're right.
One should be very cautious of reading too much into the inverted yield curve as a predictor of recessions under the current situation. The intervention by the Federal Reserve in both the market for the short and long term interest rates since the "Great Recession" is unprecedented.
The yield curve assumes that the markets for all maturities of U.S. Treasury securities are not being manipulated. Since this is still not the case,not much credence should be placed on this as a predictor.
2
Always trust your bank !
Even after death
2
Republican administrations and recessions go together like peanut butter and jelly.
34
Come before November !
11
This cant happen. There is so much winning going on...winning trade wars are easy and this is the best economy ...ever... everyone is saying it.
20
It’s winning, Bigly!
Or, who could’ve known it could go down?! Must be Obama’s fault.
6
Today, the 30 year treasury is 3.03% and you can get 2,88% for the ten year....
What do you expect is next - what should you do....?
More TAX Cuts !!!!!! The GOP response, guaranteed.
Obama's Fault !!!!!! Trump response. Also, lock HER UP.
23
The child and his government need a time out , a bedtime story perhaps would
Pacify them
Goldilocks?
Sleeping Beauty?
Pinocchio?
#3 May not work
3
How about a prisoner exchange - we give HHS and ICE trump for 2500 kids looking to work hard, live free and appreciate America instead of seeing it as an ATM and Reality Show.
16
No surprise. Look who's in charge of economic policy:
1. Traitor Trump - an ignorant, bankrupt blow hard.
2. Larry Kudlow - a TV talking head, who as economists will
tell you, if he says "sell," buy.
3. Peter Navarro - his positions are not in the mainstream,
worse, they're totally off the wall. That's why Cohn is
gone.
Looking forward to all imbeciles who make up his base, on the unemployment line.
23
Gas is up, credit card interest rates are sky high, mortgage rates ticking up, inflated stock market, Trump tariffs causing financial pain in many sectors and citizens will have to suck up the rise in prices. But "lock her up".
27
Strong economy....The only time in my life I've ever had a gut feeling about investing was in August 2001. I called my broker, said, "I feel like I should buy bonds now." Got talked down off the ledge. Well...at least I picked up a few bargains some weeks later. Sometimes the gut (a combination of all the information our brain is receiving, conscious or not) is right.
8
Anyone capable of reading 4-5 paragraphs into today's President Trump-negating piece of hysteria will see that this scare tactic rivals the danger from an asteroid strike. Look for the latter to begin receiving a lot of attention when all other means of forcing our President and his deplorably expanding base out of the limelight have failed.
7
@ to make waves: Lots of cliches, but no attention to the article's analysis in your comments. "Your" president, as you call him, will be forced out,most likely when his crimes and misdemeanors come home to roost and he is punished. By that time, even many of his supporters will have abandoned him, as also the Republican party in Congress. If you follow some economics, you should understand that reducing world trade through tariffs lowers output, jobs, and investment. That's not esoteric. Also, the Obama recovery, super-charged by Trump's tax cuts, is nearing an end. It's likely a normal correction will be turned into a severe recession because of problems in governance in America and the fall in export-related employment, and uncertainty for investors. Please keep believing this is simply "hysteria" of Trump-haters - just wait a year or so. Stick to Fox News. You will change your tune. Too late. The con man in chief will have done much harm.
29
Maybe you should read the WSJ reporting on this.
They are generally in favor of his policies, and yet their article is essentially identical.
Somehow I bet you would not label their article as hysteria.
13
Hari Prasad, In no finer moment has the difference between an optimistic America and an America hoping for collapse and failure been laid out. Thank you.
If a recession is the only thing that can rid us of Trump, I'm all for it -- the sooner the better!
23
Agree with you and Bill Maher!
10
Cassandra--given the gift of prophecy by the gods. But nobody would believe her.
Those who wish for our ruin so they can be President, lower than low.
Not to worry, we have Trump the businessman at the helm, right?
18
Don't worry, they'll be a whole bunch of Trump supporters ready to blame this all on Obama on no time!
20
Discounting it always happens during a REPUBLICAN Presidency because they insist on cutting taxes while giving away money to the 1%, this guy is clueless about how to handle anything so it's a given.
21
Not if, but when. The history of the American economy is made of cyclic swings called growth and recessions. It's normal, like summer and winter. Knowing this, government policies can respond to natural cycles and try to learn from previous ones. It's unlikely that this administration would know what to do and when to act to minimize the impact of a downturn.
11
More chaos is on the way. One can feel it coming!
6
No matter how you argue the statistics and historic trends, I’m guessing an impulsive, erratic person in the White House may not bode well for stability.
31
"I threw the I Ching yesterday
Said there might be some thunder at the well"
also:
"The highway is for gamblers, better use your sense
Take what you have gathered from coincidence"
7
Best way to predict a recession is by which party has the White House. Republican presidency = recession.
37
The same is true of fossil fuels prices. They go up under Republicans and decline under Democrats.
18
"We just need more Austerity from you folks that vote for us! Sacrifice! God wills it!"
12
Now kneel before my golden throne and pray!
10
I already cashed 5 of my accounts. Trump is a fool and no one will invest unless said person loves volatility.
17
Are the people whose jobs just went overseas "winning yet?" Are they tired of so much winning? Will they vote for trump again? How about all those soybean farmers? Winning yet?
34
It is times like this when I feel like an old fogey in a rocking chair reminiscing fondly about the good old days to youngin's with their eye-rolls and impatient fidgeting. I remember the late 70's and early 1980's, when interest rates on certificates of deposit ranged from 7-percent for short-term minimal deposits to 11-, even 13- or 14-percent on jumbos! As Gordon Gecko might exclaim, "It was better than sex"!
Well, I don't know about that, necessarily, but just thinking about those days is comes mighty close (we get it where we can find it, youngsters).
11
Yes, David, and you probably remember mortgage rates in the 14 and 15% range, complete with all sorts of add ons to make it fly.
3
I'm not sure that the opinion of an employee of Deutsche Bank is really reassuring here.
17
Memories are poor, but remember ... The Great Recession of 2008 was upon us before honest economists openly predicted it. The reason is fundamental, consumer confidence. As soon as a recession appears to loom, people quit spending and the recession becomes a reality.
Economists are mum about their fears because they don't want to jeopardize their next week's profits.
Consumer confidence in America is a problem in itself. Americans don't save, so the consumer spending is all based on debt and the money to pay off that debt are based on confidence that employment will remain high and people will be able to pay off the debt in the future. People buy houses they can't afford based on this confidence. Housing prices are way too high so in a recession prices drop and buyers are quickly underwater.
It's a vicious circle, businesses fear a recession and quit hiring or cut back production, people lose their jobs and default on their debt. It is the never ending story of the same cycle.
And the Trump trade wars will only serve to help deteriorate business and consumer confidence, even if the actual effect of the wars is long term or not a major economic effect.
Economists who are honest predict the start for 2019. The rest are looking the other way like they did in 2008.
15
You don't have to be an economist to know that where I live - when housing prices are increasing 7 to 9% every month - while incomes are mostly flat (aside from the top top) that there is only so much mortgage you can undertake - no matter how many pasta dinners and second hand clothes you wear. I've felt a big bubble forming here for a while - and now I'm just bracing myself for the pop. While I didn't create the bubble or benefit from it in any way - I sure know I"ll be hurt when it pops.
21
Same in parts of MA and NH. Sold my house in MA 2 years ago. Similar homes in the neighborhood going for 20-25% more now. I bought that house at the start of the Great Recession, 10 years ago. The neighborhood was full of foreclosures. My crystal ball says "here we go again."
10
Just give it some time and everything will even out. All these Million dollar homes will come down to earth and be worth 400,000 or less. Pay scales are not even close. We are living like we are all billionaires. Stock markets are so overinflated. It will all come crashing to earth.
13
It depends on which side of the divide you're on. If you truly have big bucks right now (think the 1%), then you will weather this recession just fine. If you're a member of the other 99%, better batten down the hatches and figure out what you can do without. I don't worry about the multimillion dollars houses losing value. I worry about the folks struggling to stay in their 3 bedroom ranches.
3
There is video from a few years ago of Donald Trump saying "It seems that the economy always is better when the Democrats are in charge." Someone should refresh Trump's memory by showing him that video.
19
I met with my financial advisor a month ago and told her I wanted to put in place a strategy to dramatically reduce my risk and exposure to a downturn. She asked me the timeframe. I said "between now and mid-2019." I told her "I'm no expert, but I'm 61 and I've seen a number of recessions before. I don't want to take another hit that I can't wait out to recover from. The evidence is mounting, and it'll be here by 2020, if not sooner." She paused and then said "We've been thinking the same thing." And so the plan is underway.
27
Yep, I put my money on 2019 a while ago.
4
What will be different this time is fiscal dry powder is gone due to GOP tax cuts and the Fed is low on monetary dry powder.
Could be a longer process to get out of (think Greece). Meanwhile in case anyone hasn't noticed the natives are getting a bit restless and a dose of unemployment may not go down terribly well....
8
Economics is more of a science every day. The next recession, given trump's and the GOP's policies, is coming right about on schedule. Just in time to render trump's dreams of re-election unworkable. But then, how someone who combines the economics of Herbert Hoover with the foreign policy of Neville Chamberlain and the social policies of Nathan Bedford Forest could be elected in the first place was something of a mystery.
48
Dear Andy, I agree.
I think a stable economy needs stable two (2) party politics. But Trump and the Right push for one (1) party domination.
The Trump, one party nation, is like walking with only one leg, and not with two legs. We are starting to stumble.
I suggest that Democrats hold up two fingers, like a V-sign, to say that we need a strong, bipartisan, two (2) party coalition.
A nation divided against itself, cannot stand.
=================================
13
In past times, I would have thought a recession would guarantee a change in power from one parry to another. Now, I fear the current President will use a recession to ramp up his xenophobic rhetoric blaming everyone but himself and the republican policy for the recession. This situation could not turn very toxic.
18
The Fed is deliberately putting a damper on the expansion by raising rates for no good reason. There’s no discernible inflation and wages are rising at a slow rate. Plus the unemployment rate could probably fall to 3% before we see any hint of inflation. The elites have time and again purposely chosen policies that slow growth—on the fiscal and monetary side—and that had made Americans poorer for it. It’s too bad that people don’t know enough about economics to see what’s being done to them.
7
Please NYT stop with the false/misleading Headlines with the intention of undermining President Trump. At one time 10 to 15 years ago I took this paper seriously. Now and then I peek in for laughs. Or read your very excellent Travel section.
Fact is the Fed is predicting quarterly growth of 3.5 for the next 2 quarters. 2.8 per quarter next year.
Interest rates are going up and that is why there is flattening of the curve. The curve is historically a predictor of inflation. . So the curve flattening is a good thing. The raising of interest rates helps keep inflation in check. The Fed raised the interest rates because of the unprecedented lowering of taxes. The excess money created by the tax cuts can make for too much money chasing too few goods.
On a side note, the EU, China are salivating because they know Americans have more disposable income. That is why the US will win concessions against these economic adversaries'.. competitors. How you say 'friends'.
I
The one important fact that the Times left out. Did I say the Times left a fact out of their 'Story'? The bond yield curve occurred 5/6 months ago.
Economic tangible left out of the story was consumer confidence instilled by Trump. Consumer confidence can mitigate the effects of a recession.
1
So when the recession comes around, we should feel confident enough to spend our unemployment checks on a Caribbean vacation?
Frank, you conservatives have been warning about imminent inflation for ten years and it has never come. Inflation is subdued because consumers have less purchasing power than previous generations, owing to the fact that the workforce is less unionized and therefore cannot collectively bargain for higher wages. All the profits are going to shareholders and upper management, and now the tariffs are actually going to send jobs overseas or kill them outright. The tax cut was also skewed toward the wealthy and corporations who are already sitting on piles of cash, so the stimulative effect to the economy will less than had the windfall gone to the middle class and poor who have more incentive to spend. The projected rate of growth is the same as during the Obama years, only now the guys you’re listening to say it’s great.
7
Another Republican recession--it's becoming tedious. This time, with a Republican in office for another two years and very little 'gas' left in the Treasury to fight it.
Let's see if our 'negotiator in chief' has the warewithall to solve it; and to not sell our economy to the Chinese in the bargain.
I'm not optimistic. In fact, I'm starting to believe that might have been the plan from the start.
21
A single chart with a line plotting the current yields, 90-day to 30-year, at the present, and a similar line showing them in 2008, would do more to explain "yield curve" and "inverted yield curve" than all the charts here combined.
It’s time to get some tweets ready blaming Obama and Canada for the upcoming recession. trump, as always, will be blameless. How can the greatest deal maker in the history of the universe have made any kind of misstep?
13
Didn't Bannon Trumps minion tell us he wants chaos. Out of the chaos and carnage they, Trump and Bannon, will rebuild America in their image and likeness. I suspect it is really disrupt the economy, cause chaos and carnage ,and then they will deliver their MAGA as our salvation. This is exactly what Trump and Bannon promised. Hopefully next time Americans will be more skeptical of fake TV prophets with easy answers to all life' problems.
15
The issue here has more to do with rising short term interest rates (the FED) as soon as they stabilize the curve will start to bounce back. The FED has been overcompensating 2H for previous lags. Real issues won't arise until people start making drastic personal financial choices (such as rapidly pulling out of long term investments and savings).
There will be a recession as a result of the resident's incompetent 'leadership.' The only question is how he will blame President Obama for his incompetence.
13
Heckuva job, Trumpie.
14
I'm going to try to keep it simple and stick to something that all his aides & Congressional members admit in private: Trump does not know what the heck he's doing. it's the ol' Casino White House: "Spin the wheel, baby!"
12
"In the current environment, I think it’s a less reliable indicator than it has been in the past," said Matthew Luzzetti, a senior economist at Deutsche Bank."
lol, seriously Deutsche Bank? The only bank dumb enough to lend money to Donald J Trump and kids? The bank involved in russian money laundering? Oh yeah, I'll just figure it's probably the opposite of whatever he says that is really true. Gaming the system no doubt and doesn't want us poor schmucks to get out before the fall and the subsequent buying up of cheap real estate and stocks by those with the money.
9
The way things are working these days with our voters, if the recession happens after the Democrats regain power, then voters will blame the entire recession on the Democrats even if the Trump trade war caused it. If the recession comes under Trump, voters will still somehow manage to bash the Democrats for either causing it or failing to stop it or based on some other nonsense. If it happens under Trump and the Democrats then later painstakingly fix the problem over many years of difficult policy making and tough political decisions in tough times, the voters will ignore everything the Democrats did to save them from the mess and elect more Republicans, who will take brazen steps that lead them right back into the next mess. Then voters will bash Democrats for being too "establishment," or corrupt, or whatever word of the week sticks to prevent thinking and justify more bad decisions. I am so fed up with today's voters. They have been doing a terrible job of performing their civic duty.
15
Didn't the GOP position itself as the business party? You know, free trade, reduced deficits, balanced budgets? Big business and the 1% got their tax cut but added $1.6 trillion to the deficit our children will be paying off for decades.
Trump's misguided trade policies will almost certainly crash the economy and the stock market while destroying our trade relations with our allies, and yet, not a peep from the GOP? How can 90% of Republicans approve of this mess?
22
When is the GOP Congress going to step in and relieve Mr. Trump of his duties. Trump has proven over and over and over to the world that he not only has no idea what he is doing, he has no interest in learning.
If the Republicans had even one ounce of brain power left after their year of bingeing on Trump Kool-ade, they would know the signs of massive failure are barreling toward them like a fast moving train.
18
They are lying there mesmerized for they hear his words - good very good
1
Two thoughts:
1. This is all the fault of Barack Obama, Hillary Clinton and Nancy Pelosi.
2. Donald Trump will single-handedly figure a way out of any burgeoning financial crisis. After all he's the smartest person in the Universe - a legend in his own mind!
14
This I know for certain. When the economy goes south (not if) Trump will blame:
Obama
Democrats
The Fed
Fake News
Mueller
Canada
EU
and any other reason he hears on Fox and Friends.
23
Funny how Trump no longer boasts about the record high stock market.
15
Peter Navarro is the latest Trump sycophant that slides though lies like an eel. According to him, the economy is wonderful, salaries are up, the President makes "great decisions" and the oceans are calm.
I certainly don't see any of this, but the rich certainly are getting exponentially richer.
I donz'ttrust anyone. especially a sycophant talking-head economist, who can't see the forest for the trees and only seeks untruths. If you want to keep what you have earned, DON'T BELIEVE THIS ADMINISTRATION!
13
Man I hope we don't go into a major recession, we will have to give the rich more massive tax cuts.
Man if the economy gets roaring again we will have to give massive tax cuts to the rich.
11
Let's assume this article is accurate in predicting a recession in the coming months. What should one do now to not be caught up in the mess and come out the other end okay? What can we do to not lose our shirts, especially for those who are retired and cannot survive another big downturn? What is the strategy used by people who profit from a recession? I'm worried and I don't want to be left with no options to move this less impactful.
7
Historically, the gap between the time the yield curve inverts, and the start of the recession, is a year and a half or two years. Not exactly imminent. For a yield curve which is nearly flat, but not inverted, the gap could be up to 5 years.
As to what we could do, in bad times there is a flight to safety, in the form of treasury securities. Of course, those don't pay much.
If you expect interest rates to drop during the recession, you could load up now on intermediate and long-term bonds.
To profit from a recession, you could use short-selling, but that is incredibly risky.
5
This article conflates correlation with causation. It's true that the yield curve is flat during good times, and steep during recessions. This is because the Fed controls short term rates, and lowers them when the economy is looking down. It does not mean that a flat yield curve in any way causes or predicts recessions.
So more fake news.
1
Robert Bradley: Correlation can be a very good predictor even though the actual causation is not known. And, in this case, the article is about the predictive value of the yield curve, which in and of itself is merely a measurement of the effect of one or more causes, and thus itself can't cause anything.
The curve's predictive value will only be less if the humans fiddling with the knobs of the economy learn from history and don't tweak the knobs the same way that caused recessions in the past. The problem with that: the rich have gotten smarter since the Great Depression, they've learned how to tweak to get richer and set themselves up to weather collapses. Still, there is room for them to outsmart themselves - which the uber greedy always do, eventually. Too bad the little guy will always suffer.
4
Robert--that's almost exactly wrong. The yield curve slopes upward during normal times. Longer term rates have to factor in more risk. When the yield curve flattens, or inverts, it signals that banks have greater faith in the longer term than the short term, and, anticipating 'hard times, want to lock in rates.
The Fed has some tools to influence short term rates, but not complete control. But the problem is not that short term rates are too high--they are historically low--but that long term rates are low.
1
Like many people, I have investments and have a long-term broker I trust, but knew little about the convoluted mechanics of finance.
But now we have Trump, and I've made it a point to read. Learn. Ask questions. Understand. And be skeptical.
Know thy enemy.
17
On one hand, the yield curve does predict recession, on the other hand, articles about it bring out comments that are highly predictable these days.
I say, enjoy while it lasts and then, when things go south, blame the Feds.
Two economic disasters predicated on two times the Republican party has had complete control and in both instances, it took a democratic administration to pull us out of the abyss. It's time to end Reagan's Republican party. They are at war with America.
49
Here's what is remarkable about this economy, Trump the so-called businessman with no real business experience other than real-estate and a number of failed ventures and bankruptcies, has inherited a strong economy from President Obama who had stabilized economy and prevented an economic crash, and set it on a steady trend of improvement continuing to this day, but has been making moves and doing everything he can to throw our economy into turmoil and I think he will succeed unless the Congress in both houses turns blue this November.
27
Too late for midterms. The trajectory has been set for the next couple years even with a blue wave.
4
Here's what is remarkable about this economy, Trump the so-called businessman with no real business experience other than real-estate and a number of failed ventures and bankruptcies, has inherited a strong economy from President Obama who has stabilized to economic crash, and set it on a steady trend of improvement continuing to this day, but has been making moves and doing everything he can to throw our economy into turmoil and I think he will succeed unless the Congress in both houses turns blue this November.
22
He is carrying out Putin's plan - weakening U.S. democracy and financial stability and causing divisiveness among its citizens.
78
This is what happens when you put a crooked, failed "businessman" with no plan and no morals in the White House. Just love that 400 point Dow drop and what's coming that will be even worse.
You cannot spend money you don't have and you can't promise things that are lies. You can't make enemies of your friends and cozy up with tyrants and expect Americans to support you.
Let's not even mention kidnapping children, Russian deals and abandonment of the rule of law.
GREAT President, huh! STUPID NARCISSISTIC SOCIOPATH who is way over his tiny head. Hasn't his "base' figured this out yet? What are they waiting for? No miracles here.
93
There is a reason trump bellowed his love for the poorly educated during the 2016 GOP primary season. So much so, that he has Ms. DeVos creating more factually challenged citizens with the deconstruction of the DOE. My bet is that after the trump crash, he will still garner national support in the upper 30's percentile.
The answer to China's predatory trade policy was the Trans-Pacific Partnership, which of course, the Ignoramus-in-Chief discarded like a used Big Mac wrapper.
93
You know, now that I understand what the TPP was all about and impact that not ratifying it has had on allowing China to move in, it was a stupid and shortsighted mistake, and Donald Trump the so-called business man should have seen it and pushed for it.
China and Russia are filling the vacuum left by the irresponsible Trump policies.
10
If TPP was so great, why couldn't Hillary sell it to the masses, instead of cynically dropping her support of it in the middle of her campaign?
This article ends with a quote from a senior economist at Deutsche Bank. Considering D.B.'s deep, dicey connections with Trump Inc, an ironic choice by the Times.
13
So will they rename NYC to RECEDA , NY?
Will this be the Reichstag fire that the Trump administration will use to claim emergency extra unconstitutional power?
16
This article shows three different graphs all vaguely referring to the "yield curve." None of them really has the ordinate (the y-axis) labeled.
Could the editors please get on the stick and look at these things? Readers would appreciate it.
15
Based on the text, I'm guessing that it is the value of the
"10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity, Percent, Not Seasonally Adjusted (T10Y2YM) " , also known as the "2-10 spread". This information is available at the St. Louis Fed site, which is cited in the article as the source of the data.
Agree that this is somewhat sloppy. An article on the "yield curve" would be expect to show at least one example of a yield curve, but none is to be found. Maybe the author isn't completely clear on the concept.
1
Look again. They are all labelled, above the graph, and all show the yield curve over different time periods. The vertical axis shows percentage points, labelled at the upper left.
Investors have no doubt enjoyed the Trump bounce but, in the absence of a coherent administration economic policy, there is no reason for anyone to expect it to continue. The psychological impulse is likely to be to cash in your chips before the lucky run expires.
The good news is that a recession would further reduce the level of Trump's public support. So if a recession is indeed on the horizon, let's hope it hits before the November midterm elections. That way it won't be all bad.
15
But there was NO trump bounce. The economy's current path was set under Obama. The effect of trump IS the coming recession.
9
To continue on my prior theme that a yield curve is unnecessary for predicting an impending recession when our current idiot-in-chief’s disastrous trade moves pretty much assure us that a crash is coming sooner than later. After all, what dolt imposes trade restrictions on a country with which we currently have a balance of trade surplus(apparently the idiot-in-chief is not aware that we run a services trade surplus with Canada that more than offsets our “goods” trade deficit).
13
It's still the economy, stupid, Mr.Trump.
Pray for a good recession to wake us up!
===============================
Money talks. Yes, perhaps we need to make some temporary financial sacrifices, in order to restore some sanity to the nation.
Hopefully, just in time to impact the mid-term elections, this year.
8
First, the article assumes all readers are ignorant or possibly just stupid.
Second, the NYT is so bent on bad news, I don’t know if I can even trust financial reporting any longer. My whole reading life, I’ve trusted the NYT to be well written and honest even when truth is difficult: I’m sad to say this is no longer the case. I worry way too much “news” is politically driven. Politics have become toxic on both sides. Sad when the news becomes the delivery system for the toxins.
Most NYT readers may love the bend just as I imagine Fox followers love what they see.
Trump will be gone one day but the integrity of our reporting must rise above because it is what will remain.
5
T1A: ????
I fail to see why you have a problem with the article vis a vis your comments. Is the NYT not supposed to report on something that looks negative because Trump is POTUS? LOL, the reporter definitely didn't take the opportunity to be as partisan as he could have, presuming he even wanted to take a particular side. Seems a pretty fair handed article to me, even if you don't want to hear its truths. Get your head out of the sand, O ostrich.
3
The reporting is accurate and NECESSARY. We have a moron in the White House who lies like the thief he is, has no plans or moral compass and insults all Americans every day with new, obscene Tweets from his addled brain.
The NYT reports this; Trump feeds it. Remember,it all started with him and he loves destruction.
It is the responsibility of the Fourth Estate to accurately inform the public, and the likes of Fox "News" are not legitimate media - they are TrumpTV.
If you don't want to acknowledge the intensity and severity of Trump's division and narcissism, don't listen. Worse yet, listen to Fox and their lies and tank America.
It's really, disgusting and extremely dangerous. If you don't deal with it, you too will soon have no money and no Constitutional rights.
5
Why don't you go back to watching Lou Dobbs, he'll tell you everything you want to hear.
1
What, Me Worry...? Inverted yield curves ahead...!
4
In 1933, Hitler became the democratically elected leader of Germany thank to the fact that France and Great Britain really beat the German up after WWI. Even as the Holocaust was going on, Hitler hosted the Summer Olympics because most sports fans, as Melanie Trump knows, don't really care. In 2018, Trump becamse the democratically elected leader of the U.S. in spite of the fact that the U.S. is economically still a world powerhouse. Instead of Jews, Muslims and immigrants are now dehumanized...in Jesus' name. However, it is clear that Trump's plan is to recreate the Great Depression to become the first American dictator. And there is no doubt that genocide is going to come to our country.
9
Regarding the Fed's hand, at some point the Fed could ramp up the selling of its $3 trillion long term debt portfolio. This, combined with financing the Republican trillion dollar tax cut deficit, would place considerable pressure on long term rates causing them to increase. Remember too, that the world's other central banks have huge long term debt portfolios of their own that need unwinding.
The only thing we can say for sure is that we haven't had this much market manipulation by central banks in the past 60 years. So no one, especially the Fed or the debt markets know how this is going to workout. Hopefully 2008/9 wasn't simply a road bump on the way to an economic depression.
2
Wouldn't the Fed's sale of large amounts of long term debt cause long term rates to decrease rather than increase?
1
It will increase seeing that the long rates are inherently unpredictable. The only time long term rates decrease is when the demand for those long term bonds increase which is reverse when people are selling them....but not everything is clear, as people in the Fed and also large holders of bonds know that once they begin selling them, it might cause a trigger effect. That is the reason why China and other large holders will not sell them...because ultimately, everyone want their investments to come ahead. Furthermore, there needs to be a place where these bond holders who have sold and now have liquid assets can park their money. There is not sufficient gold or other real places where the world's financial speculators can park their money readily.
The problems here are just another indicator of the way the Trump administration has approached - well EVERYTHING. There is no long term planning, only immediate reactions.
Tax cuts that blow up the deficit - let someone else worry about that. Trade wars that risk long term alliances - let the next administration deal with it. And on and on.
Yes, the Obama admin did many things wrong, but you can't fault them for short term thinking. For example, the ACA was a massive political hit because the benefits would all accrue in the future - but it was (and remains) the right thing to do.
I worry for the generations born after about 1980 - they will be cleaning up this mess for decades.
10
There is a recession coming and it has been staved off by cheap money created out of thin air by the Fed and other Central Banks. The GOP Tax Scam will only add fuel to the fire as it blossoms into it's full effect.
My fear is that Democrats will regain control just before the whole thing goes stupid and then Donald The Grifter Trump will blame it on them. Of course the Right Wing Media will gobble it up and the faithful will believe it, amen.
13
I'm with Bill Maher on this one. He said, he'll take a recession if it derails this dangerously ignorant president's presidency. Recessions are survivable events. Donald Trump may not be.
35
Trump's team is meeting right now to find a way to blame this on Lyndon Johnson.
14
Looks like the recession has started. Biggest recession ever, Mr. Trump? Waiting for your superlatives.
9
“In the current environment, I think it’s a less reliable indicator than it has been in the past,” said Matthew Luzzetti, a senior economist at Deutsche Bank.
a.k.a. "This time is different."
9
has anyone looked at the market today?
9
People will make conclusions just reading a 1 day swing of the markets, sadly, one day's volatility cannot be associated with any one clear event...although Financial news outlets will tell you otherwise.
One thing is clear, there is a lot more instability ahead but one day does not make a pattern...unless it repeats itself several times on an average.
1
Well here's a shocker - when you artificially goose an already robust economy you create a quick short-term high .... and then, like every artificial high, you come crashing down, hard. Shall we start a pool on the ways that despicable donnie will try to pin this on the Dems?
21
Bringing jobs back to America!
2
One day you will wake up.
1
Trump's recession coming at you!
3
Every recession of the past 60 years has been preceded by an inverted yield curve, according to research from the San Francisco Fed. Curve inversions have “correctly signaled all nine recessions since 1955 and had only one false positive, in the mid-1960s, when an inversion was followed by an economic slowdown but not an official recession,” the bank’s researchers wrote in March.
In other words, every inversion was followed by an economic slowdown, oftentimes culminating in a recession. The yield curve inversion is a very good predictor of economic slowdowns. What happens thereafter depends on economic and Fed policy, leverage, global demand and supply outlook and a host of many factors.
2
Harley is displacing a part of its production in reaction to tariff resulting from the Trade war Trump start with EU...Stand by for he blast, it won't be pretty when you had the impact of the Tariffs from China, India, Mexico and Canada!!
10
President Obama's economy lasted into the first year of Mr. Trump's term, but by December, the bad decisions that have come from the Oval Office have started to have a stronger impact. Look at a chart of the past five years of the DOW broken down by months and you will see what I mean. The ignorant and arrogant have colluded to create a trade war, a jump in the debt, as taxpayers are asked to give more and more money back to the rich, who do not invest it in jobs, but in stock buybacks. So Soy farmers and Harley factory workers and eventually dock workers and consumers are about to feel the absurdity of this man's hubris fall on their checkbooks.
17
Nobody is more aware of this dynamic than the Fed. As they normalize short rates, they will keep their eyes on the longer maturities at the same time they watch PCE inflation.
That's not to say the "smart money" won't start taking chips off the table in the equity markets as the curve continues to pancake. But such market responses are actually helpful to the central bank, as investors collectively and independently dampen their irrational exuberance.
And don't forget that a flat yield curve weakens bank profitability, which in turn weakens capital adequacy, a key dashboard for all central bankers. Recessions are even worse as the GFC proved. 3% inflation would be preferable to negative GDP, so the brakes will be tapped, not slammed.
Serious investors and pundits will do well to revisit Sidney Homer's history of interest rates, esp the late 1800s. Back then it was "pure market forces" and the curve was inverted "normally". So when folks get agitated about modern monetary mechanics, they should reflect on what free markets did back in the 'good old days' (when banking panics were frequent).
FOMC is not stupid.
I get so angry when I see these investor articles which discuss the economic indicators which merely signal to investors prime investment conditions and never the true state of our economic health which must necessarily consider the quality of the jobs and lives of the little people stuck in the middle and lower classes.
Do you wealthy corporate elites realize that we can solve all of our social problems except death if you guys and gals would do the right thing and work with our politicians and government economists to equitably distribute America’s great wealth and income?
Don’t you want your families to live in a world that permanently mimics the Heaven-on-Earth atmosphere created quadrennially by the World Cup?
4
The analysis concludes with the oh, so predictable "... but this time it is different" argument. It is never different.
8
President Obama's great economic revival ended about the same time the Republican's passed that giant taxpayer loan to the rich, known as their tax bill. If you look at a ten year chart of the Dow, you can see the Republican mark right around December of 2017 when the market stops growing and begins to reflect the confusion of the indecision of Mr. Trump.
Now that he has started the trade wars on all continents, and has doomed a great part of our agricultural economy, I think we should all prepare to tighten our belts in more ways than one.
The bond market is an symptom, Mr. Trump and Republican economics is the disease we have been exposed to. The next Democratic President will be forced to save the economy and once saved, the Republicans will abuse it until it needs resuscitation again.
38
The last section has an important caveat, one that was kind of obvious - we're in unusal territory because the interest rates has been so low for so long because of lots of intervention from the FED (intervention that many would say was necessary because of the absence of what would have been the preferred legislative and private sector action to improve the economy), and now the increase in the short term rate is again a deliberate FED policy.
That said, my guess is that we will still have a recession by 2020, especially given the policy direction.
5
Articles like this need to be accompanied by a message, in a side-bar text box outlined in red: "Numerous peer reviewed studies have demonstrated that 'economists' have never been able to predict anything. Ever."
Don't you think?
4
Looking at the graphs, I see an inversely proportional relationship between rising fossil fuels prices and lowering yield. This demonstrates the relationship between high fossil fuels prices and economic decline. When Trump began his campaign, a barrel of oil, or forty gallons, was 27 dollars and is now near 70.
5
42 gallons.
That's right. Thanks.
As a person stuck with an adjustable loan and fixed income there are not many good options. I have noticed that I’m earning more interest on my savings and my federal taxes are lower but my state taxes are higher.
The real whammy to the economy is gonna be Obamacare and health premiums. Why McCain would not repeal it and replace it as promised is beyond me. Wish him well but why is he still holding a seat?
1
The GOP plan was always about repeal and not replace.
40
Where is the Trump plan that he promised throughout his campaign. It was to offer greater coverage for everyone at a lower cost. He never even presented it to Congress, could have been just one of his numerous lies he told to trick people into supporting him? Are they still tricked?
28
As the tuna commercial said, Sorry, Charlie. There was never any replacement coming from the Republicans. They don't care what mess you've gotten yourself into or why. If you're not the 1%, if you need to work, if you can't afford to pay high hospital bills without bankruptcy, you should not be voting Republican, because you are the last person the GOP cares about, the very last.
2
Your article engages in the post hoc fallacy. Because the recessions of years xyz followed the inverted yield curve does not guarantee a recession will follow an inverted yield curve this year.
Much of the financial crisis of 2008 was related to CDOs and other spurious financial vehicles.
Please refrain from making such sweeping statements that are based on poor logical arguments.
5
The Republican Tax "reform" was not a $1.5 trillion tax cut. It was a $5 trillion tax cut for the owners of capital paid for with $4 trillion in tax increases on high-tax-state workers. Once this tax increase on a majority of the country's workers kicks in it will cripple consumer spending.
Since our economy depends on consumer spending, this will shrink growth and likely cause a recession.
Trump's crazy trade war and other disastrous policies won't help either.
The global banks are probably lowering long term interest rates because they see this coming. But they won't go against massive tax breaks for themselves, and are probably betting that another recession will win then more bailouts and more free money from the Federal Reserve.
With profits privatized and losses socialized, they have nothing to lose and even larger slices of worker productivity to gain.
67
Anyone paying estimated taxes will have noticed what their tax preparers advised for Q2 payments.....
I feel the commentators on this forum, as well as most of the media, attributes far more weight to the President's or Congress's actions when considering economic conditions. Sure tweets can cause some transient movement in the S&P500, but transient is the key word.
Economic fundamentals remain very strong and I would expect them to continue for some time. The yield curve this article speaks of is a very strong predictor of future recession; however, the US bond market is nowhere near close to sending this signal. Even with today's trade war fears and market moves, the US 10 year Treasury has hardly budged. The yield curve remains positively shaped, and although the 10 year minus 2 year spread has narrowed to ~0.35%, it remains positive. These conditions are similar to the mid to late 1990s, when the yield curve remained flat and close to inverting for many years as economic conditions were very strong.
In addition, even when the yield curve inverts, recession does not follow for 6-18 months. My reading of the tea leaves is no recession in 2018 or 2019, possibly in 2020, depending on how aggressively the Fed decides to raise the Fed Funds Rate over the next 12 months.
3
I'm worried that he will not understand any of this, if the past is
prologue. Since we don't see the tax returns we have no idea what goes on. Scary!
12
The administration will probably be crowing about how the he created the worst economic collapse, nobody can match his achievement, and like winning a trade war it was easy.
25
The "greatest, huge economic collapse " you have never see...Mark my word, it would be Trumpian!
4
The old adage "don't fix it if it's not broken" does not apply with this administration. Their mantra is "if it's working, break it."
206
Actually, give them a bit more credit. Their mantra is "If Obama put it into place, then tear it down or get rid of it somehow."
1
Since there is no such thing as a free market because the gov't is always intervening in some way in markets. The Fed's intervention with quantitative easing was an effort to stave off recession, with the Congress in thrall of austerity as the only right policy to the 2008 downturn. Not allowing a stimulus plan a chance to work unless it was larded with tax cuts. So the banks were given money to invest in the economy. Which they did to a point but they mainly played games with the money to make an easy profit on it without really investing the money in the economy. Now at last the country made it to recovery, since the Republicans could quit trying to ruin the economy since Obama was gone. Now with giant tax cuts to corporations and huge Pentagon spending increases the pump has been primed for the rich to get richer, as they once again are the winners of the current economic situation. The wild card is Trump. He seems to determined to end the recovery with his histrionic trade war mischief.
26
Government borrowing is spiking. Risky auto loans are substantial and climbing again. Student loans are surging while the ability to pay them back is not. Small wage increases in wages are being outpaced by inflation driven by steep price increases in gasoline, consumer borrowing, health insurance, and housing -- things that lead to reduced ability to show up and stay at work all day when people living paycheck to paycheck are forced to cut back on such expenditures. And, right on schedule, the Republicans in congress have cut back on financial regulations meant to stop banks and other lenders from papering over bad loans that will eventually create banking crises that lead to an overall lack of confidence in the economy.
We have seen this horror flick before. It was called The Great Recession. This time, we have much less reserve to help us rebound, and the current occupant of the White House is rapidly eliminating trust and good will around the globe that will be needed for the United States to find favorable terms for digging out of the next worldwide financial disaster.
70
One does not have to be an economist to figure out when the first blush of this tax giveaway to corporations and the wealthiest amongst us subsides the huge shortfall in the U.S. Treasury will cause the GOP (if they are still in office) to grab at the social safety nets.
The dismantling of the ACA is already taking a toll on those who must rely on individual coverage; it will certainly affect employee benefits as well if Congress continues to sit by without addressing our health coverage problems.
The scenario: Lost revenue with 1.5+ trillion dollar deficit, health coverage hard to get for average person, EPA deregulation causing more heath problems, rising higher learning costs, housing costs, homelessness. And, a Trump Administration that is wasting tons of resources on the man in the WH ego-driven immigration fiasco, trade/tariffs, isolationism, and cozying up to dictators of the world. It does not bode well. Vote 2018-2020.
27
I think the economy will have problems, but those problems generally do not happen overnight. If things start to go south in 6 months, it may be another year before the problems are apparent to the average person. The 2007-2008 mortgage and derivatives fueled "recession" (nearly a depression) did not come about overnight, and did not become well understood by the general public for even longer.
7
The precipitous drop in the stock market and bonds did happen overnight with growing concern over collateralized dept obligations.
Many experts knew of them years before, many financial journalists had been writing about them. However, few people evaluated the risk correctly.
I knew of an average person whose "safe" mutual fund made up of municipal bonds lost $15K in value in two days.
Things did happen overnight, and caught firms like Lehman Brothers with their pants down.
5
wordsworth:
The Dow was at 14043 on October 8, 2007.
The Dow was at 6626 on March 9, 2009.
That is a drop of 52.8% over a period of 17 months.
https://knoema.com/jhxfibc/dow-jones-industrial-average-historical-price...
The Russell 2000 dropped from about 850 to about 400 over the same period, for a loss of about 52.9% as well.
http://www.forecast-chart.com/historical-russell-2000.html
Certainly some people may have gotten pounded over the very short term, but the overall decline took months.
The fact that the pundits are predicting a recession will cause a recession. Thanks you very much Mr. Phillips.
2
Mark attended the parade and was one of those who was sure the emperor was wearing clothes. Beautiful clothes! The best clothes!
19
Look at the NYTs trying to talk down the economy.
Too much economic winning for ya?
4
Thanks Obama for bringing us out of the Bush recession and no thanks Trump for paving the way for our return to that recession.
88
More winning then we have ever seen before! Many people have said it's a disgrace.
2
I'm no economist, but I'm fairly certain that NYT reporters have about as much sway over the yield curve as my golden retriever.
2
These things go in cycles. No, not recession and expansion. Republicans presidents driving things into the ground, and Democratic presidents being forced to clean up the messes.
Trump has two more years to really screw things up, and then the next president will be forced to operate in a disaster area, being blamed for everything in the process.
226
Im hoping the real estate market will burst again so I can pick up a steal on a house.
10
your sarcasm (irony is too subtle) is a bit vague to me- i hope no one in your family suffers from the next economic collapse,or has pre existing conditions, or has any children or nursing home residents on medicaid...etc etc blah blah..perhaps another insane war will goose the economy too- lots of money to be made as long as no one in your family comes back in a bag or with ptsd...(of course bad stuff does happen- as rumsfeld or was in cheney cleverly stated)
2
I've been an investor since the '90s and, so, I've had to weather two major recessions and market collapses--the dot-com bust of 2000-2001, and the Great Recession of 2007-2008. Prior to the dot-com bust, investors were reassured by brokers who said "It's different this time." And before the Great Recession, US Treasury Secretary and Goldman Sachs wizard Henry Paulson claimed the economy was the best he had ever seen. Now we are told “In the current environment, I think it [yield curve flattening] is a less reliable indicator than it has been in the past,” according to Matthew Luzzetti, a senior economist at Deutsche Bank. Right.
94
In the current environment, I think that a fire set in your kitchen is a less reliable indicator for burning down your house than it has been in the past,” according to Matthew Luzzetti, a senior economist at Deutsche Bank.
2
When I think of trump steaks, trump wine, trump shoes, trump university, I think how can anything possibly go wrong with the economy
113
You forgot the Trump casinos.
2
And Trump Casinos. Everything the guy touches turns to gold.
Let’s see,
1/ Tax income slashed, check
2/ Social safety net shredded, check
3/ Trade partners alienated, check
4/ Oval Office in disarray, check
5/ Isolationists in charge, check
Right, Ladies and Gentlemen prepare for the worst and hope for the best ‘cos there won’t be any help from Washington DC.
110
What was is comedian David Letterman said about Donald Trump? Something to the effect, "Donald Trump isn't qualified to run a Dairy Queen." And there are people who believe Trump is presidential material? UNBELIEVABLE.
37
Curious to see the automated trading code being written for shorting if/when the market turns south, though there are limits in place for limit down. But for now, happy days are here again.
2
Yield curve is indeed a "mind-numbing" term for someone like myself who never studied the intricacies of Wall Street.
What I'm wondering is what those who do understand Wall Street and oppose Trump's economic policies of imposing harsh Tariffs on our trading partners and over turning Free Trade think of Bill Maher's proposal that a Recession is the only way to rid his FANS of the idea that he alone can fix it.
I'm inclined to agree and think hitting the country hard in the economic pocket book is really the only way to wake em up.
Maher has been roundly derided on Fox News and probably elsewhere for this. But as he pointed out, we've recovered from 47 Recessions and he's not advocating for a complete economic collapse but a wake up call to the Country to stand up for Democracy. History has shown us that Recessions are temporary. Upending a Democracy is apt to be FOREVER .
23
I suppose it takes a liberal to wish for the imposition of economic suffering on millions of families in order to score a political victory.
Nope. They will blame Obama.
4
Maher IS a satirist.
We have a president who knows absolutely nothing about economics breaking treaties and enacting tariffs based on groundless alt-right superstitions. What could go wrong?
73
One wonders if instead of unconditional tax cuts, a more positive outcome could have
been achieved if tax cuts/credits were only given to those companies who
invested in America (production, jobs, repatriation of cash, etc).
In other words, offering tax cuts to companies as a reward for behavior the
government incentivized, rather than coupling blanket freebie tax cuts with
blanket punitive trade tariffs in an effort to force investment back into the US.
You know..encouraging a desired outcome while still maintaining free markets...
12
Cutting the corporate income tax from the highest among industrialized nations to the middle did just that.
Are you suggesting it should have been cut to the lowest rate?
With the last 8 months and more showing that the economy is bustling, where does this doomsday "prophecy" come from? I think there is another reason for testing the waters with this "prophecy". It's a great opportunity for those with money to short the stock markets and make a killing! And of course, my second opinion - the market is due for a correction.
4
Maybe a good time to readjust one's portfolio so that there is more cash to buy back in at bargain prices when they become available. Patience and belief that these things work in up and down cycles -- with the long-term trend up -- can work. It has for me over the long haul. Those afflicted with the herd instinct always run too far in one direction and then too far in the other. That may seem cruel and heartless to say, but it has been the observation of a long, and not unprofitable lifetime.
4
Just look at the P/E rations of the equities in the market. They are well beyond the historical averages. The funds have been roiling the market in order to keep up their interest payments. The average yield on equities is below 3%, bank savings rates are at .03%, even with a low inflation rate income is falling behind inflation.
As usual, the biggest losers will be those who give their money to funds instead of buying good equities. T Bills were once the retirees friend, but with such low yields, those buyers will also have to retreat.
So yes the yield curve is telling us the economy probably will not continue as this pace for long. The market is not the economy despite what the GOP wants you to believe. The massive tax cut is not and will not cause massive increase in income or jobs. It will not produce the imagined increase in taxes needed to pay down the debt. Its real purpose is to cause a cut in government spending, create smaller government that the GOP has been working toward for years.
21
Interesting. The first part of the article tries to explain why the flattening yield is an accurate predictor of a recession, the second part tries to explain why it may not be.
Regardless, well written for we civilians whose eyes normally glaze over reading about financial issues.
I wonder if the Teflon Don's vaunted trade war will impact the economy.
11
If historic timelines are any indication then we're well overdue for a recession. If we go without one between now and next June, we'll have surpassed the longest period without a recession in US history.
12
The bond market lives and dies with Fed . Period
And the Fed embarked on an unprecedented experiment in money printing : QE1, QE2. Unprecedented is short for lacking a proven exit strategy
Below is from the FT (Financial Times), 2013
Unwinding the world’s biggest economic experiment
" The exit from quantitative easing was always going to be long and arduous. There is no historical playbook for the central banks to follow. Like a fighter pilot who has experienced combat only in a flight simulator, the real thing might be very different. The central bankers are confident that they have the technical tools to finish the job but, as Mr Bernanke admits, it will be like landing that plane on an aircraft carrier, and possibly in stormy seas."
Well, now the weather forecast is for stormy seas.
Surprise ?
7
This article is pretty straightforward and I can't help but feel the Fed's desire to raise interest rates is going to hasten the next recession.
4
They need to raise rates so they'll be able to lower them when the recession hits. Essentially, they're trying to reload their gun before it's too late.
13
They are raising it to stave off inflation. Interest rates have been at incredibly low levels for years. Bank depositors with interest-bearing accounts have not been able to make any money for years.
The fed has a big balance sheet relative to historical norms, but it's been declining this year. It's the change that should effect long term rates, so I would expect that this decline would boost long term rates. The bond market seems to expect trouble ahead (gosh, why would that be?), otherwise long term rates would be rising a lot faster.
As long as there's no core inflation, the fed could call a halt to short term rate increases and thereby prevent the flattening of the curve. This trade war isn't good for price stability and oil is up but inflation has been remarkably tame lately. Hope it lasts.
2
The yield curve is a predictor of recessions, but not as precise as one might think.
The period of time between the yield curve inverting, and the subsequent recession, is not necessarily short, and can be variable.
A typical period is about a year and a half or two years. That's a long time to be hunkered down in a defensive investment posture.
Also there's a difference between a flattening yield curve (where the 2-10 spread gets low) and an inverted one (where it actually goes negative). Back in 1995 the spread got down to .15%, which is less than the .34% we have today. However, the next recession did not begin until 2001, almost 6 (!) years later. Again, if you had spent the last half of the 90's preparing for recession, you missed a major economic boom.
Also, the terminology in the article is somewhat sloppy, which can be confusing. The author uses "yield curve" when he really means the "2-10 spread". None of the graphs actually present a yield curve.
8
What is missing from the analysis is a discussion of the wisdom or lack thereof in a Fed policy that is obsessed with the fear of inflation when unemployment falls to below 4 %. What triggers recessions is prematurely raising interest rates when there is no evidence outside the oil cartel of inflation . President Trump‘s protectionist trade policies also exacerbate the problem.One cannot completely banish the business cycle driven as it is by technological change, demographics, globalization and decision making error by corporate actors and financial speculation. But it is quite likely that the U.S. could allow unemployment to fall below 3 % without an inflationary environment developing for a considerable period of time.
8
And adding to the signs are an increase in interest rates which helps no one but the banks. Every Republican causes a recession-so why do Trump voters and most Republicans believe they are good for the middle class? If a recession hits, jobs, housing sales, car sales and everything else is affected. Only then will Americans vote in a Democrat to rescue them-just like in '92 and '08. My biggest worry this time is that the next recession could be even worse because the national debt is worse-thanks to tax cuts, so will the government have any money to pump into the economy like it did in '09? I worry that it won't, and that even a Democrat will not be able to save us.
21
"And adding to the signs are an increase in interest rates which helps no one but the banks."
Higher rates reward savers who want a return on their cash without the risk of losing most of it on stocks that are outrageously valued by any measure.
2
So the question begs asking: if all the evidence supports the notion of an impending recession, and if the Fed has virtually no room to cut rates from what are still historically-low levels, and if there's little or no (or less) room to engage in fiscal stimulus, and if exports are constrained due to tariff wars, then how can corporations be expected to protect their earnings? And if corporations can't protect their earnings, what props up share prices? So why in the world are stock buybacks at historic highs, when it appears so obvious that corporations should be hoarding their cash - even at virtually no current returns - to have the powder dry to swoop in and acquire other companies at future bargain levels even if their own share prices fall precipitously?
Of course, the last question can be answered by the observation that corporations always engage in peak buyback activity when stock prices are at unsustainable highs.
8
Impressive! An article on the yield curve that begins by saying that it will explain the yield curve and then neither defines/explains what the yield curve is nor shows one in any of its charts!
Pro tip: the yield curve is an entire line ("curve"), and can't be reduced to just the gap between interest rates at two different maturities.
8
Another interpertation is the FED seems to be determined to raise short rates (the front end) even though the market thinks there is no real inflation risk and, if anything, the FED could move too much and push the economy into recession so no need to sell the 10yr (the back end)
4
The Fed may have few choices available to it when faced with financing the enormous increase in debt handed to it by Congress and Donald Trump. Remember, we didn't cut spending, only tax collections. To pay its bills, the Federal government will have to raise rates.
We have no prior history that I know of where the US declared a trade war against our principal creditor, China, which currently holds nearly $1.2 trillion in Treasuries. (Perhaps Japan in the 1980s?) Those dollars China earns from its trade surplus with the US get reinvested in American securities. What if China refuses to play along? How high would interest rates need to rise to attract sufficient interest from other investors?
1
There is a tendency to think of Trump supporters as gun loving bigots who beat their wives, drink too much and have trouble meeting the monthly payments on their trailers, boats and motorcycles.
This is true … but not all true.
A sizable portion of his constituency consists of more or less normal Americans who are fully aware of his looniness, but support him despite this, because they believe he may in the long run be good for their pocketbooks and IRAs.
The recent decline of the stock markets is good news. They are telling us that ordinary Americans are beginning to doubt not only his sanity, but also his luck.
49
The stock markets tell us little or nothing about the opinions of "ordinary Americans." Ordinary Americans either own no stocks at all or own funds, usually through their employers or 401(k)'s. The dynamics of the market are driven by market professionals, and to an ever-greater degree, the "decisions" made by algorithms searching thousands of stocks for possible short-term gains.
5
Anyone who believed Trump would be good for their pocketbook or IRA wasn't paying attention.
DJIA:
2016 January – May: +8.9%
2018 January – May: -1.6%
Difference: +10.8%
All this despite massive stock buybacks.
1
Great education. Thank you very much.
Can you overlay the Yield curve with the historical prices of fossil fuels?
6
I whipped up this one at FRED. (Anyone interested in economics and finance need to acquaint themselves with that site.)
https://fred.stlouisfed.org/graph/fredgraph.png?g=kgH4
I'm not sure I see much relationship though.
1
How anyone can predict anything other than disaster with the clown at the wheel escapes me. Remember he can't resist wrecking anything that is functioning well. Factor in that he has over two more years and had I investments I would be seriously watching my Ps and Qs. I think writer Matt Philips is prescient here as we watch (in horror) Trump create financial chaos out of thin air, his speciality. You also need to factor in the fact that he has failed to do anything in support of the greater US economy. Where is the infrastructure bill Republicans?
36
Of course the Republican response to a recession will be tax cuts and cuts to the social safety net. That's what you get when you have only one tool in the tool box.
19
Or one fool in the tool box.
2
So what are the odds that anyone can get Trump to focus long enough to hear qualified economists explain these dynamics?
I’m no economist, but I know a bubble when I see one, and I can smell trouble when trouble’s acomin’.
17
Sounds like a natural progression, we have Republicans controlling all arms of the government.
16
45 will blame this on Democrats and criminal immigrants. Actually taking responsibility is not in our future. And of course Trump supporters will double down so they don't have to feel bad about what their POTUS mascot has done with the power they've handed him.
Of course the rest of us will be complicit if we don't vote against him.
15
Another recession will come sooner or later with or without Trump.
With Trump it is more likely to be sooner and much more painful.
Demagogues like Trump throughout history have almost always ruined their countries from the first one Alcibiades in classical Greece to one of the last Chavez in Venz.
17
1% Tax cuts? Check
Unregulated Wall Street/Banks? Check
Trade War Brewing? Check
SO much #Winning, what could go wrong? I'm sure it will somehow be Obama's fault.
15
The yield curve is not “ ... the difference between interest rates on short-term United States government bonds, say, two-year Treasury notes, and long-term government bonds, like 10-year Treasury notes.”
It is simply a plot of interest rates on the vertical axis against increasing maturity on the horizontal axis.
1
Whenever I hear a lot of people talk about how much they have made in the stock market, and which stocks to buy, at dinner parties, I know it's time to sell. Just like the times when taxi drivers were day-trading. Also, Trump is drunk with his approval-punch, and acting like a fool. The Wall Street will catch up with his actions and words.
85
DJIA:
2016 January – May: +8.9%
2018 January – May: -1.6%
Difference: +10.8%
All this despite massive stock buybacks.
"The Fed will continue to aim at its foot until it hits it".
Not an actual quote from the article, but sums up the last few paragraphs.
3
This article is particularly scary for me because I plan to make a $10k withdrawal from the principal in my Roth IRA's later this year. If the market collapses before then I will need to sell more shares of my fund to get those $10k than if I sell now. But if I sell now I miss out on the end of year distributions those shares can bring me. It's a catch 22 made worse by the most incompetent band of thieves in history running this country! My guess is Trump and Wilbur Ross are shorting global stocks and then pushing policies that will cause the market to crash! It is not enough for these robber barons to loot the US Treasury they also want to wipe out your retirement savings in the process. So in addition to legacy of ugly racism and bigotry, Trump also leaves a trail of financial chaos and economic destruction in his wake. This is what half of the American electorate voted for. Sure, they are sitting back and enjoying Trump sticking it to those who having savings in the markets blissfully ignorant of the ramifications of these policies for themselves. When John Deere, Caterpillar, Boeing and all their thousands of suppliers start to lay off workers because of slumping sales due to a global tariff war they will start to scream bloody murder. But it will be too late to stop it then. The Trumpists don't realize they are shooting themselves in the foot!
22
I'd do whatever you're going to do now.
3
I'd second that. Those missed distributions will allow you to stop worrying about this part of your financial plan.
The filthy rich will make money, either way. Its the rest of us who will suffer.
11
No suprise here. This economy is a house of cards that will leave the Democats cleaning up--again--for years to come.
14
And, sadly, the remnants of the Republican party will blame the Democrats for taking too long to get the economy going again, and claim they could’ve done better.
This time, we will save the headlines and re-run them, to remind everyone what foolishness is, and what it costs.
3
when the trumpsters put the economy in the dumpsters you can't say they weren't warned.
5
Jeez. Who will he blame it on?
4
I don't really understand the mechanics of what is going on-however, I bet 45 (Not-My-POTUS) will blame Obama...
18
Three things should alarm Americans
1) the economy is artificially propped up by scam trickle down economics and the fed is no longer artificially supporting assets
2) deficits are soaring and interest rates are low which handcuffs theability to fight the next recession. Political cooperation nope.
3) trump is a nut who careens through life and his erratic and immoral behavior is undermining and dividing our nation. Congress is unwilling to be a check and balance
107
"You can try and play down a trade war with China."
It should be "try to" not "try and." The sentence is meaningless as written.
7
Instead of trump sneering and slurring Elizabeth Warren, perhaps he should have a long talk with her on these matters because I know that she knows more about this economy than he does.
On the other hand, I want her no where near anyone who is so utterly disrespectful and deliberately ignorant.
Instead, perhaps Harley-Davidson should have a long talk with him? Soon?
30
Trump faux trade wars are causing American manufacturers to move overseas to avoid tariffs. (see NYTs article about Harley Davidson Motorcycles). Who suffers? The American worker, who (ironically) may have voted for the Idiot-In-Chief. Trump's tax cuts are going to negatively affect working Americans the most. Housing costs will soar due to some of these dumb policies, and who will be affected most? The American worker.
When will the American worker stop voting against their own self-interest?
7
Yeah! This will stop Trump!
2
With a very long expansion already, it's hard to think that we won't have a recession sooner rather than later. The tax cut did little for the economy other than one-time bonuses for some workers and shareholders.
With the trade wars that Trump is starting, we are looking at higher prices for all sorts of goods. Jobs are already leaving the US, as Harley Davidson announced today and dairy owners in Wisconsin are worried about where they will sell their products. Not harbingers of good times to come.
7
History has repeated with a canny (and alarming) accuracy that almost every republican administration has presided over a recession. (some with multiples)
They cut taxes on the wealthy and corporations. Those corporations and wealthy individuals reap the vast majority of benefits, buy backs of stock and then short term hire people.
The market and economy inevitably crashes, because the infrastructure and middle class cannot sustain itself on the slashed investments, benefits and the like.
The people get hurt, and in their pain inevitably vote in a Democratic (the grown ups) administration to reinstate a balance and fairness, while republicans filibuster all efforts to do so.
Rinse, repeat, fail.
22
A yield curve is unnecessary to predict an impending recession when we have a president enabled by his party's complicity enacting disastrous trade policies, which most assuredly will end badly for the US economy.
9
The GOP needs to ask themselves if their brand can afford another recession while they are in charge and will surely be blamed for it by the public. Recessions happen but this pending recession would be caused by the Trump policies. In an unpredictable climate everyone starts to play it safe and the economy retracts as a result.
8
Surely be blamed? They could easily blame Obama.
Yes long term interest rates are low, but that is still likely an artifact of the quantitative easing (QE) that took place from 2008 to 2014. During QE, the Fed bought lots of US debt, which created demand. High demand means higher prices, and since bond price is inversely related to yield, the yield has steadily declined over the last 10 years. Basically what we are seeing is a result of the massive effort by the Fed to fix the economy after the 2008 crash.
1
Thinking of the Great Recession of 2008 compared to 2018 we must remember that it was caused by tax cuts (check), bank deregulation (check), and financial turmoil--then sub-prime mortgages today an international trade,war (check). Donald Trump has done it again--creating the perfect economic storm for a recession by emptying our treasury with huge and wasteful tax cuts for the wealthy, imposing job-killing tariffs on Canadian, Chines and Europeans goods, and allowing the Dodd-Frank financial reform act to be emasculated. And all this while the Federal Reserve continues to raise interest rates. If that doesn't spell "recession" or worse, I don't what does.
12
I note that every Republican Administration since Teddy Roosevelt's has endured a recession; four of them endured three recessions during their tenure (Eisenhower, three ). And according to a 2013 study by Alan Blinder and Mark Watson of Princeton, 'Presidents and the Economy; A Forensic Study', by almost any measurement, the economy, at the end of an Administration, performes better under a Democratic President then under a Republican.
So, given the fantastical juicing of the economy that the Republican tax cuts to the rich and corporations has ,momentarily, given the industrial and financial sector, and given our current President's unpredictable penchant for inflicting mayhem on our country and our once stable western alliance and trading partnerships across the world, my guess is, is that like an old-but otherwise reliable- six cylinder Ford that has been juiced up by an inexperienced teenage shade tree mechanic (in attempt to make it perform like a hot rod V8) the economy is just about ready to blow-up in this Administration and our faces.
11
Thanks to Trump "economic policies", "trade wars", and "tariffs", him, and his "advisors" are doing anything possible to create a recession. Not only yields, on interest rates have been flat, the stock market, with its ups and downs has seen little gains since mid January. This was when Trump decided to impose tariffs to "make America Great Again", and "bring back American jobs".
Well, it is isn't working. For example, Harley-Davidson (see other article), is going to eliminate American jobs and move some manufacturing overseas, to avoid tariffs from Europe. I suspect that they will be a beginning of a flood of American companies doing the same thing.
Of course, in the worse case, the US will go into recession, while the rest of the world doesn't/ Remember what happened to Japan, in the 1990s?
https://en.wikipedia.org/wiki/Lost_Decade_(Japan)
Guess, what? It is about to happen here. We are already in our "lost decade", from the Great Recession. Trump policies are about to make that worse. At least, in 2008, the US and the world were somewhat cooperating, even though US policies, help create the Great Recession. Now, with Trump making enemies of just about everyone, the US is going have to climb out of Trump's hole by itself. It is is going to be ugly.
14
Until we see a spike in real wage growth there won't be "true" recession unless trade policy tanks the economy. I say "true" because the economy right now is goosed by the tax cuts. So, think of it as a random walk away from the mean GDP. I think what's really interesting is that we are seeing 4+ GDP without higher wages. My thought is that technology has mitigated the cost of output therefore a unit of output is much cheaper today then it was 10 years ago. Along with the lack of collective bargaining and we are seeing a skewed distribution of winners and losers. Since, the distribution of returns are going to either top management or shareholders / market participants then the employee there is no outward pressure on prices. (top 1% can only buy so much stuff). Once the tax stimulus is over we will fall back to 2.0-1.5% GDP and trundle along (providing no trade war). I would put a bet on stagflation being the issue where both the fed and fiscal policy are mute. There few cards left in the fiscal narrative unless we are prepared for a major spending initiative and rates are still extremely low. Technology advances will further dampen the price of output and suppress any wage increase into the near future. It pays to own land, labor and resources it will not be as rosy the other way around.
5
“In the current environment, I think it’s a less reliable indicator than it has been in the past,”. The operative word here is "think." As the man said, "Thinking does not make it so."
3
As I write this, the Dow is off by more than 300 points and has lost ground in 9 of the last 10 trading days.
I am encouraged by this.
The Republicans will never allow Trump to be impeached in the present economic climate. But continuous declines of the stock markets aided by some calamitous declines could do a great deal to help change their minds.
79
Last week it was down over 500 points.
This morning it is down over 412 points at 9:15 PT.
Actually, I'm beginning to wonder if the reason the R's don't want to impeach trump is because they secretly know that Pence is an even bigger fool.
7
So this has Wall Street's attention all of a sudden? I imagine it does. Most likely to cast blame elsewhere rather than accept that as beneficiaries of the Republican tax cut, they themselves are most likely the reason.
15
As short-term interest rates rise, it will affect mortgage lending. Money becomes more expensive to borrow, so people can only borrow less, meaning, that they will not be able to pay the prices that homeowners are currently asking for their homes. Which means that either the prices of homes will go down, or that more homes will be consolidated under the ownership of rich people who pay cash and don't need a mortgage. Landlord Nation, anyone?
19
I hope you are not entirely correct. I would think single family homes is too much of a risk/hassle for many would-be landlords to permit a vision such as that to overwhelm our society. I would hope that the real estate market forces would regain balance towards a more realistic number.
In the northeast I do see many more apartment buildings being constructed in the past several years. How these people will commute is the next scary part. They haven't added transit lines or more roadways. That haven't added another tunnel to the big apple island. Heck, they've barely maintained the existing roads.
3
Ask yourself this question. Would you rather see another recession that results in Trump not being re-elected, or a continued robust economy that bolsters his chances of being re-elected?
14
No choice. I will take #1. Our very democracy is at stake.
11
Recessions are cyclical. Regardless of who is president, a recession in the economy is going to come at some point. The more you keep leveraging assets to "pump up" the economy through tax breaks, the less the government has in its war chest to combat the next recession. Quoting Paul Tudor Jones, "The next recession is really frightening because we don’t have any stabilizers. We’ll have monetary policy, which will exhaust really quickly, but we don’t have any fiscal stabilizers.”
2
I’m not sure a recession will hurt Trump. His supporters hate immigrants and black and brown people far more than they care about their own economic welfare.
4
there was no objective cause to prime the economy with a Trillion dollars of unpaid debt, most of it headed to corporations and the ultra-rich at a time when we were already near full employment. It was targeted to the 2018 elections and hopes for a Republican sweep. So when politics triumphs policy, this is what you get.
53
Until the US again becomes a manufacturer/provider of goods, we will be at the mercy of others. Too long, we have had big conglomerates (corporations are NOT people) moving jobs to where the cheap wages are, which also means citizens have less work at home. The current government to change this and we need to do so.
2
But that is not what is happening. Manufacturers need cheap raw materials. Watch while more manufacturers move to Europe and Indonesia.
14
So they keep saying "consumer spending shows signs of rebounding" but the average folks are not getting raises and stores and malls all over are closing. If we are a consumer society but no one can buy anything but basics...and we have managed to irritate our overseas markets... who is gonna buy all these goods? huh...
12
your charts show the yield curve but not the spread between short- and long-dated Treasuries, which is where the flatening shows up. One common measure is the so-called TED spread, the spread between short-dated two year notes and ten-year bonds.
6
I believe the TED spread is between short term Treasury bills and LIBOR
1
This inversion of the yield curve predicts recessions? They can start from 6 months to two years afterward? Give me a break! I can predict recessions too. There's one coming in the next few years.
2
If anything can hasten a recession it is a rise in interest rates, combined with high fuel and housing costs. I believe the markets will react at some point and begin readjusting the value of companies downward. The questions that we all await to learn are:
How large will the readjustment of the value of companies in key industries be by the markets?
How rapidly will those adjustment be made by the markets to re-set those market values?
The answers to those questions are now the questions we all should be looking to be answered by the markets and the Fed's responses to those answers.
3
I lack the economic chops to comment on the prospects for recession outlined in the article, but what scares the heck out of me is that if we encounter anything like 2007 in the near term, it will up to Trump and his minions to solve it. Ain't gonna happen.
192
I remember even McCain looked unstable compared to Obama. Trump makes that McCain look like a rock.
Trump's solution will be to save money by doing away with Medicare and Social Security. The Republicans are working on that right now.
1
Re: ...inversions have “correctly signaled all nine recessions since 1955 and had only one false positive, in the mid-1960s, when an inversion was followed by an economic slowdown..
The past, ante QE, is NO longer a guide to post QE
The fiscal reality, long realised , is that the printing unprecedented amounts of money by the central banks during the recession would necessitate with the perilous task to unwind their position.
NO central bank, ever, unwound a position of the size of the Fed, the first to try.
That this might to a recession has long been realised
"It is a lot easier to begin monetary stimulus than to end it. More than a quarter of a century has passed since the Japanese bubble burst in 1990, and the Bank of Japan is still pumping money into the economy and trying to keep ten-year bond yields close to zero. "
Buttonwood, Jul 8th 2017
7
"As in all market moves, perceptions of its significance mean the yield curve can sometimes become a feedback loop.
If enough investors begin to grow concerned about a recession, they will likely put more and more money into the safety of long-term government bonds. That buying binge which would likely help flatten, or invert, the yield curve.
Then people will write articles about the curve sending a stronger signal on recession. And that could, in turn, drive even more people to buy into long-term bonds. Rinse. Repeat."
---------------------
Let's all be honest for a second: the feedback loop is that our economy - like our nation - is being headed by a buffoon. The tax cut was a horrendous idea, a solution to a problem that didn't exist. Obama's economy was humming along just fine. If we didn't have a complete fool at the helm we'd have nothing to worry about.
Let's not complicate things: our problem is the guy running the show.
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1
Whether or not current "flattening" is indicative of a recession, a recession there will be as there have been forever in U.S. capitalism every generation of so, in different degrees of calamity,
to the detriment of the working class who will get a bad haircut. An economy can be managed more rationally for the benefit of the people.
7
Let's review...the US monetary policy has been "bubblenomics" for over 30 years. Bubble boy Bernanke and Bubble girl Yellen are accorded god-like status on Wall Street for "rescuing" the economy but they have helped create the biggest credit bubble in history.
While many express concerns over the $21Trillion US debt, by some estimates world wide debt is over $200 Trillion, much in dollar-denominated debt.
$USD strength from higher rates may be the pinprick that pops the bubble. It won't be pretty and it won't end well.
5
These traditional economic indicators are inadequate reporters of U.S. economic health because they do not tell us how the majority of Americans are faring in the economy. These numbers are created by elite economists to signal to other elite economists, bankers and investors optimum investment conditions. They do not and cannot tell us how John and Jane Doe are making ends meet. The unemployment rate is another inadequate metric that is abused by the government and press to signal economic health. By the government’s own definition, the metric doesn’t even tell us what it purports to, leaving out whole categories of unemployed people. The only way to determine the true state of America’s economic health is to look behind these traditional economic indicators and report on the quality of the jobs in our economy and the lives of Americans holding them and searching for them. No, my friends, the economy cannot be great if America has the greatest wealth and income disparity the world has ever known, most American jobs fail to pay a living wage, American worker wages have been stagnating for decades and Americans by consistent double-digit margins believe we are moving in the wrong direction. It’s great news that this bubble of a great economy may soon be about to burst. Hopefully, then, Democrats will be moved to embrace the task of repairing this truly broken economy and bringing relief to hardworking Americans stuck in the middle and lower classes.
30
I agree. I would also like to know how much debt consumers carry. I’d like to know how much the US citizen has in savings. In the long term, if people aren’t able to save for retirement there will be problems. Some people are still recovering from the Bush housing crash. And the deficit. How soon are taxes going to go up to make up for the Trump tax scam. The curves are the story economists tell. Show me what will happen to a family of four.
13
As a small business owner, I vividly remember long days in 2009 spent staring out the window, wishing the phone would ring and wondering what we would do if we went belly-up. I worried for our co-workers' futures then and I do now, even though business is booming at the moment (like it was in 2008 here in the Midwest). It's W all over again but with an 8-foot red tie and a permanent sneer.
So thank goodness our president knows more about the economy than anyone in the world, and he alone can fix it! So sleep well tonight, comrades-in-arms; our sour savior and his Grand Old Plutocracy (kudos to Verona's Socrates) are alive and well and so is our teetering, twittering, tariffing economy.
298
When someone you trust tells you how much Donald Trump actually knows about the economy, I hope you are not too close to the window and that it is only on the first floor.
3
It's also a good idea to keep on eye on the housing market. Many economists believe that housing is at the core of the modern business cycle. So far, prices, homes sales and new construction have continued to increase but 30-year fixed rate mortgages have increased about 60 basis points and are heading toward 5%. If home sales and construction begin to weaken in coming months, the recession signals will turn from yellow to orange.
20
I agree with your real estate boom and bust equivalency to 2008.
That was due to mortage fraud, this is due to tax cut fraud.
I believe there will be an outcry in 2019 when taxes become due and millions of Americans will see their tax bills skyrocket because of the limits on state and local tax deductions which include property taxes.
S0 yes, the trigger will be housing housing housing when people realize they really cant afford the tax liabilty. Housing prices will plummet and there we go again.
Yeah you are right, I hate to say.
2
If a recession occurs, or even if it threatens to occur, the current regime will seize on it as an excuse for more tax cuts for the wealthy.
35
I think I'm seeing a trend: Dems come in and nurse an ailing economy back to life. Repubs come in, take credit for the newly living economy, and then trash it before leaving office. Dems come in and start over again. But always the wealthy gain wealth while the rest fight over what's left of the pie.
1376
I'm 70 and I see the same trend. Capitalism could probably work for everyone if only we could regulate it with a democracy.
254
Do you remember the Carter presidency? 20% mortgage rates. Runaway inflation. Gas lines around the block. Outright recession. But of course you don't mention that time because Carter was a Democrat. And it took a Republican in the form of President Reagan to get us out of it, while simultaneously introducing the longest period of sustained economic growth in the history of America.
This has been going on for decades and the Democrats keep falling for it.
Democrats trip all over themselves telling workers they can't be helped because of the debt, then Republicans come in and borrow to give goodies to their donors.
Taxing and spending is fiscally responsible and good for growth. Borrowing to pay for tax cuts is fiscally irresponsible and bad for long term growth.
Believing liars over and over is bad for getting elected and bad for policy.
2
Whenever you hear bank leaders and financial people attempt to explain how "things are different" you know trouble is lurking. Historical trends mean something. Just because we are in a Trump ponzi scheme giving all of the money to the rich does not mean the underlying data is good for the average American. The interest rates have been kept artificially so low for so long that eventually there was going to be a recession. The only thing we don't know is how bad it is going to be. The confidence in Trump is caving as more and more people realize he is just rhetoric without plans of action. He simply thinks you can bully others and they will fall in line. His actions have simply pushed the Chinese a half a century forward on their time line to be the leader of the world.
228
One addition. He thinks he can just bully others, but he has no hint of a plan for them to fall into line with. Even if he sounds like he does it'll change in diametrically opposite directions several times before he fails to get Congress to support him. Then he'll give up and blame the Democrats.
1
Its going to be the MAGA recession--unless its really, really great, then it wall become the MAGA depression.
35
The yield curve is a sure predictor of recession, and, according to latest calculations, we are at approximately the same point we were in 2007. Recessions are inevitable, but they can be delayed, and their effects can be lessened by wise macroeconomic policy. This occurred under the Obama administration, but, needless to say, Trump has thrown caution to the winds and is accelerating our descent into recession by unwise tax cuts that benefit mainly corporate shareholders, increasing the deficit to over a trillion dollars a year, and embarking on a tariff war with our trading partners. The stock market has been struggling lately, signaling a possible economic downturn six to eight months from now -- too late for the mid-terms, but well-timed for 2020.
34
If you are in college, graduate now, or graduate five years from now. You're hosed if you graduated into a recession.
We never recovered from the last recession. We've been on quantitative easing life support with a decade of record low interest rates. It'll be interesting to watch the outcome of this experimental monetary policy.
33
I do not believe this is an 'experimental monetary policy'. It is a necessary monetary policy. If the Fed does not raise rates, it has virtually no tools to use when the next recession hits. It was a significant tool used to help us claw our way out of the Bush recession and it again be necessary to dig us out of the Trump recession.
4
For what it's worth, through the entire history of the United States there hasn't a ten year period where it hasn't suffered though a recession/depression. But don't worry if we do get a downturn under Trump he'll convince his followers that it's fake news and that he's made America Great Again.
143
At least the Fed has been raising the short term rates recently.
I believe the prime is at 1.75%.
Reducing them again may the only tool in their bag to help mitigate a downturn.
However,with his borrowing of trillions of dollars to give it to the rich and wealthy for the sake of a trickle down economics debacle of a tax bill, Paul Ryan will be leaving us with a ticking time bomb as he sets off to private life laughing all the way with his insincere cheshire grin.
If we survive a recession til then, I believe the trigger will be next 1st quarter tax season when millions of Americans in large Blue nationally economic engine contibuting states find that their taxes have gone up, way up.
A reckoning is a coming. We ain't seen nothing yet.
131
"However,with his borrowing of trillions of dollars to give it to the rich and wealthy ~"
What were the multiple QE's under obama? Oh! We forgot about that already.
Perhaps it is time for the President and Republicans to pass an even bigger tax cut so the increased demand for long-term borrowings to pay for it will help raise the longer term interest rates? Surely if we work hard we can borrow enough to raise long term rates. Or might even larger tariffs on more goods push up inflation enough that longer term rates would follow for a while before the economy contracted?
1
I don't know about the midterms, but my bias has always been on the coming recession being the primary factor that puts Democrats back into control of all three branches of government.
It's the economy stupid. It will always be the economy. And Trump and the modern GOP are literally as bad as they come when it comes to husbanding an economy.
And once this recession hits, the awful mess that Trump and his enablers will leave will cry out for a principled reformer of the very first order.
And it just so happens that in this upcoming cycle, that reformer is a woman...
219
Democrats had their chance, and they screwed up. That is how Trump got into office to begin with
Unfortunately Democrats always take responsibility for the disaster, just like Republicans always take credit for the Democrats recovery when they come back in.
Why did Democrats let Republicans blame them for a recession that happened during Bush's term?
Please, god, do not let HRC run again. She couldn't beat Obama, remember. What the heck are you referring to?
As the GOP literally strips regulations off financial institutions, we should be cautious when looking at the our big-picture financial future.
Less regulated financial markets, increasing interest rates, stagnant to mild movement in wages, a strong dollar blended with trade war speculation forces an economic slow-down.
In the foreground, trump, our Liar in Thief, is holding a gun to Trading Partner's heads demanding they lower their guns first with proving no guarantee that he will lower his or come back later with new demands.
And yet, in spite of this forced local and global economic turmoil, the Fed still manages the US interest rates as if the US was an economic island.
21
History does repeat itself and history reveals that capitalism thrives in an environment where markets are well regulated and the political leadership is focused on providing a steady hand to incremental growth. The track record for Republican administrations in the past century has not been good. All to frequently, their policies have destabilized our economy through degregulation, irresponsible "top heavy" tax cuts, mismanaging international relations and starting expensive wars, including the latest "trade variety". It was a very clear sign when President Trump started bragging about how much he, personally, was responsible for the booming stock market, that equities would soon be bouncing up and down but, overall, trending downhill. It should be obvious that Trump policies are inherently destabilizing - by increasing the national debt, overturning much needed regulations, upsetting international trade, and fostering greater income disparity among our citizens.
659
“…equities would soon be bouncing up and down but, overall, trending downhill…”
DJIA:
2016 January – May: +8.9%
2018 January – May: -1.6%
Difference: +10.8%
All this despite massive stock buybacks.
1
Who would have thought the economy involving trillions of dollars and most of the planet's population could be so complicated?
271
"Most of the planet's population"?
2
After a lifetime on Wall Street I will never say this time is different but some things are different this time. One, the actual rates are quite low by historical stands. Two, the long bond yields have been kept artificially low by Fed through quantitative easing. That said we haven't repealed the business cycle so a recession in the next two years wouldn't be shocking.
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“…some things are different this time…”
One example: QE.
A look at stagnation in commercial real estate sales would show warning signs too. I’ve talked to commercial brokers recently about why storefronts are empty in big cities like San Francisco and NYC. When rents are too high, new businesses can’t open. When the cost of buying a building is too high to justify reasonable rent in a neighborhood that isn’t gentrified yet but the building is offered at gentrification prices for example- what is going to happen? One broker I spoke to was considering his options, including taking a hit in taxes for capital gains, on the recent sale of two properties he’d had for 25 years. He made a ton of money! But he couldn’t justify reinvesting with the prices he’s been seeing when he thought about whether there was a real chance he couldn’t turn them around in the short term for a profit or rent the spaces for anything less than astronomical prices. He knows too many other struggling new landlords who can’t rent their empty storefronts for what they need to to cover the huge payments they have recently incurred in the hot market rush to buy in. Older owners like him may hold on to property they’ve had for years or decades and they can afford to have vacancies here and there- even long term ones. But less secure and heavily leveraged landlords who bought high and now can’t sell or rent the spaces for what they need because prices are just too high are in trouble. The rumble and rumors on this have been building for 2 years already. Yikes!
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They get a tax break for having no tenants, which makes it cost effective to wait for higher rents.
1
Now THAT was an interesting comment.
2
This is a zoning issue, in many of these areas residential real estate is in short supply, and commercial space is in excess.
Why would the central banks not start offloading their long term bonds, thereby contributing to an increase in long term interest rates. I read the article and then went back to make sure I am understanding what you say correctly - that the Fed is raising short termm interest rates on the one hand, but not off-loading the debt they hold on the other. Somehow, I don't understand the rationale for this, outside of ensuring that lending becomes a money losing proposition?
9
If the Fed starts unloading their long term securities it will in the short run driver up long term rates. However, that means mortgage rates will rise slowing down housing and other construction. Other long term borrowing costs will also go up forcing corporate and other borrowers to move to the shorter end of the curve to help control their interest expense.
Then, of course, America's big foreign investors, most specifically China, could start to sell their bonds and movedown the curve to take some profits they've accumulated during this low yield/high price for bonds environment. China could have added reason to sell after July 6.
In the short term this could steepen the curve before it snaps back as short end borrowing pressure drives those rates higher. But given all that and the fact the GOP Tax Heist is having a very transitory impact, betting on a brief curve inversion followed quickly by an economic downturn seems more prudent than not.
1
The “inverted yield curb” everyone is ignoring is that of what the current administration will do when real signs of a recession begin to appear.
In every crisis I’ve seen them handle so far, their yield seems completely inverted to me. That is, they cause something in the first place and make it even worse by trying to correct it.
I don’t know what will ultimately trigger a recession, but I’m pretty sure that once it starts, the ride will be quickly accelerated by our governments currently haphazard ways.
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This is what animal spirits look like when they can't catch anything. Everyone loves those "animal spirits" supposedly freed up by Trump from Obama's stability. well, how ya like me now?
Woe to the investor and businessman who ignores or downplays the relevance of bond market movements. While the Fed, banks and governments, to some extent, act in a public way, the bond market quietly determines investment decision making, consumer credit, and other economic determinants every day.
Ignoring the yield curve or downplaying its significance does not improve one's economic position. And, it is a mistake to believe that somehow it's "different this time", or less reliable, statements which imply that the rules of investing and investment have changed. They haven't.
69
So an inversion reliably predicts a recession in 6-24 months? Given the length of the current expansion, how many people really believe it will last more than 2 years anyway? One can take heart that we're at least 6 months away since it hasn't inverted yet.
But we're in new territory: Quantitative easing, an expansion with an very gradual start, major fiscal stimulus when we need it least, and the strangest president in history. The smartest folks on Wall Street are the one's who know they don't know anything.
21
The St. Louis Fed’s Leading Economic Indicators [fred.stlouisfed.org] has a much better record of predicting recessions, and it predicts for now a solid economic outlook. So too does the Conference Board’s LEI. Facts, not myth.
4
The curve hasn't inverted yet. This article is a little alarmist.
How strange your reply. The St. Louis FED is one of 12 regional Reserve Banks all part of the central banking system of the United States. As a matter of fact, this article is based on the very article on ALL 12 of the Reserve Banks websites. Neither the website nor this article is predicting a recession next week or in the next few months, but if there is no correction in the curve sometime between now and the next couple of interest rate increase could very well put us into a recession sometime in 2019 at best in 2020.
RE: Released - Thursday, June 21, 2018
“While May’s increase in the U.S. LEI was slower than in recent months, the improvements in a majority of its components offset the declines in leading indicators of labor markets and residential construction,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “The U.S. LEI still points to solid growth but the current trend, which is moderating, indicates that economic activity is not likely to accelerate.”
That is not a solid economic outlook, that is stating there is not likely to be any accelerated grow which for all the tax cuts the corporations received on should see bigger growth!
4
Good morning, madam. To which St. Louis Fed LEI do you refer - there doesn't appear to be any SLFR LEI but many for states, none aggregated. The SL fed site has the April 2018 US lei which appears to conform to the article's conclusion. Am I correct to ask for your clarifying help or are you in fact not an economist at all.
1
What Trump does not understand is that this is not just a trade war, it's a war against Trumpism, the new normal where being the bully is symbolic of strength. Even if all tariffs were eliminated, people will refuse American products due to Trump.
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The FED bought up massive amounts of long term bonds through quantitative easing and that strongly depressed the price of those long term bonds. Now, the FED is raising short term interest rates to head off inflation, due to the overheating economy, so it appears the FED's mandate has been turned on its head: it is slow walking us into the next recession by contributing to the flattening of the yield curve.
10
People can joke all they way, but the numbers don't lie: A yield curve inversion has always been followed by a recession since we started tracking the data.
And there has never been a recession that was not preceded by a yield curve inversion.
Nobody is telling you to sell your stocks. But the time for adding to new equity positions is over.
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Unless you are lucky or well advised, as they say in that business.
4
In other words, you are a member of this administration or congress who has already priced in the coming recession by taking numerous short positions in the markets.
According to the article there was one false positive. Still a very good record for a leading indicator.
Like many things in the financial world, things can be illusionary or based on real fears. The last point in the article about quantitative easing and the Fed's raising of interest rates was reassuring, but I then thought about President Trump and his coming trade wars. If this war happens and is as bad as everyone thinks that it'll be, then I believe the possibility of a recession is real and may happen with frightening speed.
73
Quantitative easing is just giving away trillions of dollars to global banks.
The Fed gave away a net of at least $3 trillion. That is about $10,000 for each citizen, $40,000 for a family of four.
Imagine the economic stimulus that would have been generated if each citizen got $10,000. Foreclosures could have been averted. Student loans paid. TVs and furniture bought.
It would have been too effective.
Trying to stimulate the economy by throwing money at global banks doesn't work because their incentives are not aligned with our needs.
If they get a billion dollars and decide to invest in Asia, what does it do for Americans? Nothing.
Economists for the rich deride direct payments to citizens as "helicopter money," but $3 trillion in cash dropped or of helicopters would have grown the economy much more effectively than QEII or tax cuts for the rich.
Instead of the Fed giving more money to the global rich, all new growth in the money supply should be divided equally between every citizen.
This would benefit the people that actually own the money, be a far easier to control lever with with to control inflation and growth, and would actually be fair.
In the days of the internet, there is no reason for global banks to be inserted between the money supply and the citizens.
The money belongs to us and we know what to do with it.
3
Foreign countries usually buy our long-term end of the Treasury bonds. The low interest rate is kept low on purpose so that we don't have to pay a hefty money to foreign countries. However, if our government does not control its budget. Sooner or later the long term rate will go up.
2
I'd say the Greatest Depression.
63
From the article it states that the Fed has been raising the short term interest rates which is the cause of the flattering of the yield curve which will a recession the invariable result.
If the Fed had not been increasing the short term rate then the yield curve would not be flattening, therefore the article implies that it is the Fed's actions which are leading to a recession. Why would the Fed be doing that?
That clearly is not the case, so why doesn't the article author consult with former Fed Chairmen Yellen and Bernanke to explain would want to cause a recession? Why would the Fed want to slow down the economy and economic growth?
3
The Fed's mandate is not to operate in a way that maintains a sloped yield curve. It's to try and stabilize inflation and unemployment.
Today, we happen to be in a situation where long-term interest rates are low, which would imply wanting to keep short-term interest rates lower as you said, but inflationary risks are high, which would imply wanting to increase short-term interest rates to head off inflation.
Obviously the Fed would want the yield curve picture to look rosier, but economies are complex. Not all data will always point to the same conclusion. Since the Fed's goals revolve primarily around inflation, then increasing rates makes more sense given the above situation.
The questions you should be asking are what is causing the inflationary risks that are driving the Fed's decisions and, as this article mentions, why are long-term interest rates not higher.
1
My point as well. Most of the fed increases happen at the short term side of the curve. I would bet those inversions in the past were a direct result of fed interest rate increases aimed at slowing down the economy. I think this time it could be more troublesome - what if the slowdown jeopardizes the book value of all those mortgage backed securities. What happens when the fed has to start recognizing losses on the MBS portfolio? Instead of 100 billion a year in profits given to the us treasury - any federal reserve loss could significantly affect the fiscal deficit. Keep in mind Trumps deficit in February was 215 billion. He's doing a great job of destroying commonwealth all by himself.
6
Because with interest rates at practically zero, there were no tools left for the Fed to counter a recession.
13
A far simpler explanation is that the short term rates can be controlled by fed tightly and they have been increasing as fed has been raising the rates. The longer term bonds are not so easily controllable as factors such as interest rates in the rest of the world determine treasury rates. With EU, Japan etc still maintaining very low rates, US treasury bonds are still very attractive to invest and that has kept the rates low.
8
Deutsche Bank? The one that financed Trump when every other American Bank abandoned him? The one that has been fined for money laundering? The one that is tied to Russia? Consider the source, in this case look at the yield curve and ignore the assurances of Matthew Luzzetti.
441
you got that in spades. wouldn't trust them as far as we can throw them.
3
Eero:
Deutsche Bank is a German bank, not an American bank.
No American bank will loan money to Trump, the 6 time bankrupt. He has burned them one time too many.
2
You nailed it! Why believe trumps laundry service? Deutsche Bank is thirsting for more blood from the peasant class.
1
If the economy tanks, let's say in 6 months, it will tank just in time for Trump to be able to blame the democrats after they book success in the midterm elections.
In Trumps' view anyway, if something good happens, it must be thanks to Trump, and if something bad happens, it's always because of democrats.
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But also consider that the presidential elections will be conducted in the midst of a recession with President Unfit (or Pence) in office - a prescription for a White House turn over.
9
No worries. The tax giveaways, the massive deficit and the trade wars will all be parked in front of Trump Tower. If a recession is what it takes to blow up this toxic joker, then so be it. It's a price the country should be glad to pay.
3
One thing's for sure: Coca-Kudlow, Carl Icahn Takeover Your Company And Fire The Employees, Phone Booth Planet Killer Pruitt, and Wilbur Ross[1] will know exactly which stocks to short.
We won't get our Jobs Jobs Jobs, or a tax cut anywhere near Paul Lyin's[2], but "covfefe" and his Dumpster Cabinet of government anti-ministers will laugh all the way to our bank, to take our money.
[1] Not worth a nickname. His real one is silly enough.
[2] I was about to say "anywhere near "covfefe" or Paul Lyin's", but then I remembered the dotard doesn't even show his tax returns. You don't need a cut in what you don't pay...
3
A completely ridiculous article. The high end of the curve is controlled by unknown market factors that no one has ever adequately explained. The low end of the curved is controlled by effective fed funds rate which is a function of the target Fed Funds rate set by the Federal Reserve Open Market Committee, and also (to a lesser extent) the Federal Reserve market activity. This means that the rate differential from low to high yield is set by the Federal Reserve and NOT the market.
One could argue that Fed Fund actions which raise the Fed Funds rate, and thus flatten the yield curve, "might" precipitate a recession. The empirical evidence over the long term (since 1929) does not support this argument, although limiting the sample period to >1980 partially supports this argument.
However, because yield curve shape is NOT market driven, it is incorrect to argue that a flat yield curve is an independently measured sign of a coming recession.
3
The short end of the curve is also market driven, and can deviate from what the fed does. They are bonds, and are auctioned and sold on market each day. While the fed funds can act as a sort of cap in some instances, or base in others, it is a market nonetheless. Interest rate markets (and most financial markets) are noisy, and the long end of the curve is driven, at least in part, by matching (insurance) needs, banks which try to hedge against moves for their own long term loans, inflation expectations, currency needs, project funding needs, and other factors. As far as a "measured sign of coming recession," I don't believe that was the point of the article. It simply says the curve inversion has correctly precipitated (by 6 months to 2 years) each recession going back to approximately WWII. That's a pretty strong record, and it speaks for itself.
3
The Fed has announced they will continue to raise short term interest rates to"control"inflation . So apparantly the FED is more concerned about inflation than a recession. If this is such a widely held indicator of recession, Why would they continue to raise short term rates?
11
Inflation is a concern of the GOP. Inflation makes the money you have less valuable, while recession makes the money you have more valuable. If you're young, inflation signals a good economy, jobs, wage growth, etc. If you're on a fixed income or don't like changing jobs to get better wages, then recession is good.
6
The Fed is raising short term interest rates in order to have some dry powder when the economy does start to pull back.
As regards inflation, clearly having 'enough' is a mandatory objective of any debt-ridden nation...otherwise, in a *de*flationary environment (e.g., as in a recession/depression), paying off debt becomes increasingly more difficult and can become a death spiral.
Notably of-late, the value of the dollar has been going *up* and many commodity prices have been going *down* (deflationary).
7
Of course the Fed is more concerned about inflation than a recession. That is what they are Congressionally mandated to care about -- inflation and employment; not booms/busts, strong GDP, etc.
"The monetary policy goals of the Federal Reserve are to foster economic conditions that achieve both stable prices and maximum sustainable employment."
https://www.chicagofed.org/research/dual-mandate/dual-mandate
2
And with trillion dollar deficits due to the Republican tax heist, it is difficult to see how the government can respond if things go sour.
793
That will be the emergency and excuse to gut Medicare, Medicaid, Social Security, and any other government program that keeps the most vulnerable out of the gutter.
9
No it isn't. They will cut social welfare programs to balance the revenue losses from the tax cut. That's been the plan for ages: starve the beast.
2
1) Raise taxes on the oligarchs;
2) Pump money into the economy like despicable donnie promised, and we knew he would never actually do ... like, oh, say, some big infrastructure programs.
4
Interesting, but the last two paragraphs are the key takeaway: the current flattening is happening for very specific reasons. No need to panic here. Don't we have enough other things to worry about?
7
There is usually a boom before a bust and we are in a boom. Stock prices and real estate are very high. Oil is climbing. Deficits are climbing. Trump has reduced restrictions on investments. Unemployment is low. Inflation is returning. Now, we are staring a global trade war right in face.
It's all there. Add in the that we haven't had a recession since 2008, we are overdue for a slowdown. All that is needed is a trigger and the trade war will do just that. If the threatened tariffs become a reality on July 6, the next six months could be very interesting and not in a joyful way.
986
And pile on that the fact that our "like a really smart guy" president decided to run a huge deficit during an economic upturn, and things look even bleaker.
389
I am not surprised . Since 1945 there has been a major recession with every GOP administration and it took the Democrats to undue it. When you give to much tax breaks to Trump and his rich friends what do you expect will happen. Yet the GOP supporters keep voting for poor leadership and failed policies. Also our military has gotten so much more money that money should have stayed in for the middle class and poor to use. If this is a bad recession as they are I hope we have a democratic congress to fix the mess Trump and friends caused.
1205
When has Congress "fixed" anything? They either cut or spend. Fixing seems to only come with a crisis, like Puerto Rico?? Oh, well.
When President Obama inherited the GOP mess the Democratic congress fixed the economy. The GOP favor the rich and when you give everything to them the economy falls apart. President Obama had the longest sustaining economic growth in decades. So our Democrats get things done not your GOP. They are for themselves and you should stay away from the polls if you keep voting the GOP.
3
Actually since 1929
2
is it possible that the bond market is more cautious because it is dealing with the most erratic administration in memory, making prediction difficult?
607
Any bets that these reporters are jonsing for a rescession to hurt President Trump. The bond market is very unpredicable folks and this is normal..
The trend in the yield curve has been in place since about 2014, so it doesn't seem like a response to Trump in particular.
1
Where is Groegia?
What happened to the tax cuts? We know. Corporations (like Harley-Davidson, now closing plants and moving overseas) spent their tax savings buying back their own stock to inflate share prices. No infrastructure investment, no R&D, just short-term financial manipulation.
The future of industry in the US is dire due to Trump's policies. It is no surprise that long-term borrowing is tanking. No one believes in continued growth in the US, thanks to Trump.
Hey MAGA-heads! Watch your jobs disappear! Watch your 401k tank! So much winning? Thank Trump and the Republican minions who prop him up.
992
That it's only phase one. When high-tax-state worked fine it that they have to pay $4 trillion in new taxes (which will somehow get blamed on Democrats) consumer spending will crash.
1
Of course. Everything Trump touches fails. The man is a walking, human wrecking ball.
3