‘The 2020 recession’ (formerly known as ‘the 2019 recession’ and once ‘the 2016 recession’) isn’t totally implausible. By then, the US expansion would have lasted longer than any other in modern history, not that age is an important feature. Financial markets are already looking choppier and risks are mounting. But the downturn I keep reading about in rival publications – not that you should ever read rival publications – always blames Jerome Powell and his colleagues at the Federal Reserve for not being particularly smart, unable to see something that is blindingly obvious to every sellside macro guru. Bascially it seems everyone is forecasting a Fed policy error. Officials will focus on backward looking inflation data and because the lags from monetary tightening are notoriously long and variable, they will just keep raising interest rates until the economy suddenly cracks. Even an inverted curve won’t discourage the central bank because officials are sure to think up lots of clever technical reasons why the yield signal is “distorted”. After all, in the battle of the curves, the Federal Reserve surely puts more weight on the fictitious Phillips variety rather than on the bond market’s (proven) ability to predict interest-rate swings .
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