Slowly Hiking Into a Recession

Mike Mish Shedlock

The Fed is expected to hike on Dec 18 and perhaps in Mar 2019. The rise in the 3-month yield reflects that expectation.

The inverted yield curve persists for a second day. It reflects the idea that the Fed is slowly hiking the economy into recession.

Let's take a look at how we got here.

Yield Curve 2011 to Present

Click on the chart for a larger image.

Why the Yield Curve Inverts in One Simple Picture

Earlier today I posted Why the Yield Curve Inverts in One Simple Picture

Here's the chart once again.

Inversion Not a Recession Requirement

Whether or not the 3-month to 10-year spread inverts may very well depend on how many more hikes the Fed gets in.

Nearly everyone seems convinced the bond market will give its standard recession signal in a timely fashion. That is to say, nearly everyone is convinced the two-year to 10-year if not the 3-month to 10-year spread will invert.

Japan has had numerous recessions where its yield curve did not invert at all. The US could easily do the same.

Current Spread

The 3-month to 10-year spread is currently 0.492 percentage points. It may take two rate hikes or more for that portion of the curve to invert.

Don't count on it.

Actually, I expect a recession before that portion of the curve inverts.

Bear in mind, I am not suggesting it is wrong for the Fed to hike. Rather, I suggest there should not be a Fed at all and interest rates should be left to the free market.

The Fed has blown three major bubbles in 18 years.

Mike "Mish" Shedlock

Comments (12)
No. 1-7

Maybe they need to bring Ben Bernanke back so he save the world. lol


The debt monster is growling, demanding to be fed (Fed). Once the growling morphs into bear market, defaults, recession, interest rate cuts and printing seem inevitable. Will it work like last time? The ratio of new debt to incremental increases in GDP keeps rising.


If individuals and corporate America can't survive a 'neutral' funds rate order 2.75% then they deserve to go under (and probably should have long ago)


I'm all in favor of the fed hiking rates. Even if it leads to recession. I would rather go through a bumpy decade or so than have a huge out of control crash.


Who cares what direction rates go when central banks buy all the bonds,all the stocks,all the gold,all the oil,all the silver,manipulate forex markets>central banks have printed over $80 trillion in the last decade and bought well...everything not nailed down to create the illusion of (permanent/never ending )"recovery",do you really think that can continue forever...?


Oddly today is the day of remembrance for a president who deferred the problems into the future and the stock market is closed today as sell orders are deferred until tomorrow. Expect a mess when futures open at 6pm EST.

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