The News Radar

Timely links to external news and articles, usually valuation related, with occasional commentary.


Originally posted Monday, 18 July 2022
As Fed Tightens, Economists Worry It Will Go Too Far

Economists increasingly expect the Federal Reserve, in its efforts to push down inflation, to raise rates enough to trigger a recession, with many worrying the central bank will go too far.

Economists surveyed by The Wall Street Journal now put the chance of a recession sometime in the next 12 months at 49% in July, on average, up from 44% a month ago and just 18% in January.

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There are hints that higher rates are already starting to bite. In addition to falling home sales, the two-year Treasury yield has risen above the 10-year Treasury yield, what economists call a yield-curve inversion. Yield-curve inversions signal that investors expect higher interest rates in the short run to lead to declining economic activity and future rate cuts—and historically have preceded recessions by 12 to 18 months. However, Mr. Berson cautions that downturns occur only after other short-term rates (such as the federal-funds rate) also rise above longer-term rates, and that hasn’t occurred yet.

Recessions are bad, and a lot of people get hurt during them. But at this point the alternative to a recession may be quite a bit worse...