Remember The Media’s Obsession With This Recession Metric?
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It’s called the inverted yield curve, and it happens when the 10-year treasury interest rate goes lower than the 3-month interest rate. Why should that matter? Because it tends to occur when markets believe that the Fed is going to hike interest rates. Since the Fed traditionally only sets interest rates in the shorter duration part of the bond universe, that shows up in short-term interest rates. That makes sense. If I was pretty sure that the Fed was going to hike overnight rates in the next month or so, that would affect my willingness to buy 30-day bonds at current rates. After all, if rates are going higher in just a month, you bond sellers have got to give me some kind of incentive to buy your 30-day bonds now. That’s why overnight rates and 30-day rates move closely together and both of them tend to move to the Fed’s music.
So, there is nothing inherently magical about an inverted yield curve. The bad magic which tends to trigger recessions is rapid, large rate hikes, which tend to end easy money bubbles.
So if the rate hikes that trigger the recessions and inverted curves are just a symptom or marker or proxy for that, then why not look at rate hikes? Because the media lives on access to your eyeballs, and you are adapted over the aeons to look at what scares you, so scaring you is an easy way to get you to look.
And it worked. Google shows a spike of searches for the word ‘recession’ in late March.
But let’s zoom out a little:
The inversion was short-lived, very short lived. The shortest lived on record.
And quite tiny. Let’s zoom out a lot:
The recently obsessed-up inversion is so tiny in the great scheme of things that it disappears from view in the Fed’s automatic chart scaling. Yes, by the grey recession bars, you can see that inversions go together with recessions — sometimes during, sometimes after long delays. But look at the difference in size and duration. These inversions sometimes are a full or half percentage point in magnitude. This recent fortnight-long inversion peaked at -.05 percent, one twentieth of one percent for two days. Find something else to worry about.
Originally published on Townhall Finance.
Jerry Bowyer is a Forbes contributor, contributing editor of AffluentInvestor.com, and Senior Fellow in Business Economics at The Center for Cultural Leadership.
Jerry has compiled an impressive record as a leading thinker in finance and economics. He worked as an auditor and a tax consultant with Arthur Anderson, as Vice President of the Beechwood Company which is the family office associated with Federated Investors, and has consulted in various privatization efforts for Allegheny County, Pennsylvania. He founded the influential economic think tank, the Allegheny Institute, and has lectured extensively at universities, businesses and civic groups.
Jerry has been a member of three investment committees, among which is Benchmark Financial, Pittsburgh’s largest financial services firm. Jerry had been a regular commentator on Fox Business News and Fox News. He was formerly a CNBC Contributor, has guest-hosted “The Kudlow Report”, and has written for CNBC.com, National Review Online, and The Wall Street Journal, as well as many other publications. He is the author of The Bush Boom and more recently The Free Market Capitalist’s Survival Guide, published by HarperCollins. Jerry is the President of Bowyer Research.
Jerry consulted extensively with the Bush White House on matters pertaining to the recent economic crisis. He has been quoted in the New York Times, The Wall Street Journal, Forbes Magazine, The International Herald Tribune and various local newspapers. He has been a contributing editor of National Review Online, The New York Sun and Townhall Magazine. Jerry has hosted daily radio and TV programs and was one of the founding members of WQED’s On-Q Friday Roundtable. He has guest-hosted the Bill Bennett radio program as well as radio programs in Chicago, Dallas and Los Angeles.
Jerry is the former host of WorldView, a nationally syndicated Sunday-morning political talk show created on the model of Meet The Press. On WorldView, Jerry interviewed distinguished guests including the Vice President, Treasury Secretary, HUD Secretary, former Secretary of Sate Condoleezza Rice, former Presidential Advisor Carl Rove, former Attorney General Edwin Meese and publisher Steve Forbes.
Jerry has taught social ethics at Ottawa Theological Hall, public policy at Saint Vincent’s College, and guest lectured at Carnegie Mellon’s graduate Heinz School of Public Policy. In 1997 Jerry gave the commencement address at his alma mater, Robert Morris University. He was the youngest speaker in the history of the school, and the school received more requests for transcripts of Jerry’s speech than at any other time in its 120-year history.
Jerry lives in Pennsylvania with his wife, Susan, and the youngest three of their seven children.
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