Economists at TS Lombard think the recession prognosticators actually are watching the wrong yield curve. They say that rather than looking at the spread between 2s and 10s, the more meaningful pair is the three-month bill's spot price and its 18-month forward, or the market-implied price. That gap "is rising, suggesting a recession is not imminent," the firm said in a note. The reason TS Lombard prefers that spread as a gauge is that it reflects monetary policy "and therefore inverts when the market anticipates an easier monetary stance in response to the likelihood or onset of recession." As things stand, the Fed is indicating that it will continue to raise rates, or tighten policy, something it would not do if it was anticipating a substantial slowdown in growth.
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