Janet Yellen says yield curve inversion may be false recession signal this time
Former Federal Reserve Chairman Janet Yellen said the markets may be wrong this time in trusting the yield curve inversion as a recession indicator.
“Historically, it has been a pretty good signal of recession, and it think that’s when markets pay attention to it, but I would really urge that on this occasion it may be a less good signal,” Yellen said on Fox Business Network. “The reason for that is there are a number of factors other than market expectations about the future path of interest rates that are pushing down long-term yields.”
The yield on the benchmark 10-year Treasury note was at 1.623% on Wednesday, below the 2-year yield at 1.634%, causing the bond market’s main yield curve to invert and send markets plummeting. The bond market phenomenon is historically a trusty signal of an eventual recession; however, Yellen said this time may be different.
When asked if the United States is headed into a recession, Yellen said “I think the answer is most likely no. I think the U.S. economy has enough strength to avoid that, but the odds have clearly risen and they’re higher than I’m frankly comfortable with,” she said.
https://www.cnbc.com/2019/08/14/janet-yellen-say-yield-curve-inversion-may-be-false-recession-signal-this-time.html
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various parts of the yield curve have been inverted for a while. back in march, the inversion of the 10-year vs. the 3-month made headlines. that's a pretty good recession predictor, but the 2-year is historically a stronger predictor of recession.
part of the reason is that the 3-month is more in control of the fed and/or expectations of fed action. that's good and bad. as far as the signal goes, it means that the 3-month might temporarily be at the "wrong" level, predicting recession when the risk is actually low.
the 2-year is harder for the fed to control, for better or for worse, which means that a 10yr-2yr inversion is more likely to be indicative or real underlying problems rather than a temporary fed miscalculation.
i think yellen's point is that a lot of our problems could go away if donnie would just stop his tariff nonsense.
wouldn't surprise me if that's his game anyway. depress the economy until summer before the election, then drop the tariff crap while declaring victory, watch the markets boom, and ride the wave to re-election.
was president, when the fed left interest rates unchanged for years on end and when congress was a stalemate for years on end.
obama's last 6 years in particular were the most stable and predictable 6 years on record, but that didn't stop the media complaining about some mythical "uncertainty".
then along comes a one-man wrecking crew called donnie, bull in a china shop, imposes tariffs on china to end the bull market.
no one know what he's going to do next because that uncertainty is exactly his game.
but does cnbc complain about the uncertainty? not really, not in the same way at all. the uncertainty now is in the outcomes, about how china will react, not about any uncertainty coming out of "washington".
