Slowly Hiking Into a Recession

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

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compsult
compsult

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.

mkestrel
mkestrel

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

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