The 10-year Treasury yield passed the below that of the 3-month note in Wednesdays trading session. In economics this is known as the inverted yield curve. Yield Curve inversions have had a strong but not perfect forecasting history. The pervious inversion happened in October of 2022 and the has still been no recession, 2 1/2 years later.
At the end of January, when the 10-year yield was about .31 percentage point clear of the 3-month, the probability was just 23% of a recession actually occuring. However, that is almost certain to change as the relationship has shifted dramatically in February. The reason the move is considered a recession indicator is the expectation that the FED will cut short-term rates in response to an economic retreat in the future. So while there is no certainty that growth will turn negative this time around. investors worry that expected growth from an ambitious agenda under President Trump may not happen. In response, traders are now pricing in at least a half a percentage point of interest rate cuts this year from the FED, an implication that the central bank will ease as growth slows.
The article states, "Whether or not we're forecasting a full-blown recession, I don't know. You need job losses for a recession, so we're missing one key point of the data". But with Jobless claims come out 2/22 and was up nearly 20,000 from the previous week which shows signs that unemployment may be increasing because DOGE's reallocation which has led to the unemployment of Federal employees. It will be crucial to watch employment and growth in the. economy to truly see if a recession is signaling.
It will be really interesting to see how DOGE’s decisions will impact the economy as a whole. They have definitely already affected the federal unemployment rate, but I am curious to see how their decisions will affect non-federal unemployment rates/industries?
ReplyDelete