Recession Will Overtake US Economy According to Reliable Indicator
NEW YORK – March 25, 2019
The US economy is in full swing towards recession. The most accurate leading indicator - the yield curve for treasury bonds - is giving the corresponding signal for the first time since 2007.
The curve has inverted, that is, the long rates are lower than the short. Over the past 50 years, this indicator has accurately predicted impending recessions, almost without sending any false signals.
Note that the inversion began to manifest itself last year, but at that point it affected only the segment between two-year and ten-year securities; many experts were quick to remind that this indicator is not quite accurate, and that more reliable is the segment between three-month and ten-year treasures.
Typically, a recession occurs on average 311 days after the onset of the inversion, as happened in 1990, 2001, and 2008.
Experts believe that history will repeat itself now, especially since the world economy is slowing down, Europe is literally on the verge of recession, and China is growing at the slowest pace in the past several decades.
Meanwhile, President Trump continues to believe in himself and in the US. In an interview with Fox News on Sunday, he said that the American economy would have grown by 4% if the Fed had not raised rates and was not engaged in normalizing its balance sheet.
Trump has repeatedly blamed the Fed and its Chairman Jerome Powell for economic failures, but experts believe that the regulator has made the right steps, having to raise rates while the economy was growing.
Now, during the new crisis, the Fed will have at least some room for maneuver, unlike the ECB or the Bank of Japan, which still use all possible incentives.
It is worth noting that the inversion of the curve coincided with the beginning of the fall in the US stock market. Perhaps market participants saw this as an important signal and began to sell. However, it is also possible that this is just a coincidence.
One way or another, the market correction is ripe. Although the Fed is preparing to move to a softer policy, it still continues to withdraw dollars from the system, and the markets have won back all the first three months of the year.
In addition, the Fed itself expects a slowdown in the economy, therefore, buying shares at current prices is not entirely appropriate.