They arrive mid ongoing concern that the U.S. central bank’s historically aggressive campaign of interest rate rises could send the economy into a downturn
Two Federal Reserve regional bank measures that map bond yields to the economic outlook still put better-than-even chances of a U.S. recession by next year, even as recent gauges of activity in everything from consumer spending to hiring show little evidence of a pending slowdown.
Both models divine their message from the state of the U.S. government bond yield curve. Since October, the yield on the 3-month Treasury bill has been higher than that of the 10-year Treasury note, an atypical state of affairs that forms what’s called a yield-curve inversion. Normally, yields on longer-dated securities are higher than those for shorter maturities to compensate for increased long-term investment risks.
Fed officials have said so far that they see slow growth this year and no recession, although a number of policymakers view it as a real risk. Recent data, however, has found the economy unexpectedly resilient in the face of the monetary policy tightening, a development that could force the Fed to be even more aggressive with future rate rises.
“That is a plausible explanation,” Philadelphia Fed President Patrick Harker said in a interview earlier this month. “I wouldn’t say it’s the only one, but to me that seems plausible.”
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