{"id":13203,"date":"2024-06-05T16:03:15","date_gmt":"2024-06-05T16:03:15","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=13203"},"modified":"2024-06-05T16:03:15","modified_gmt":"2024-06-05T16:03:15","slug":"the-yield-curve-has-been-inverted-for-a-while-wheres-the-recession","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/the-yield-curve-has-been-inverted-for-a-while-wheres-the-recession\/","title":{"rendered":"The Yield Curve Has Been Inverted For A While. Where’s The Recession?"},"content":{"rendered":"\n

Andrew T. from Nashville, TN asks:<\/em> Hello Mitch, I can recall from some of your previous writings that an inverted yield curve has usually been an accurate recession predictor. But I\u2019ve noticed recently that the yield curve has been inverted for a long time with no sign of recession. What changed this time around?<\/p>\n\n\n\n

Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n

Thanks for sending your question, Andrew. You\u2019re absolutely correct\u2014the yield curve, which measures the difference in yield between short-duration U.S. Treasuries and long-duration Treasuries, has historically been a reliable recession indicator. The chart below shows the 3-month\/10-year U.S. Treasury bond yield curve going back to 1980. The red circles show yield curve inversions and the gray bars show recessions. The correlation between the two is evident and shows up if we go back even further in history to the previous eight downturns.1<\/sup><\/p>\n\n\n\n

\"\"
Source: Federal Reserve Bank of St. Louis2<\/sup><\/em><\/strong><\/figcaption><\/figure>\n\n\n\n

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Since 1968, it has taken anywhere from 9 to 24 months after a yield curve inversion for a recession to take hold. In the current cycle, the yield curve inversion enters its 24th month in June, with no sign of recession in the United States. Employers continue to add new jobs every month, consumer spending remains strong, wages are rising, and inflation appears to be anchored around 3%. Corporate earnings also continue surprising to the upside.<\/p>\n\n\n\n

There is no simple explanation for why a recession hasn\u2019t followed the current yield curve inversion. One reason I\u2019ve floated is that the economy and U.S. corporations are already flush with cash\u2014bolstered by strong economic growth, strong earnings, and trillions of pandemic stimulus dollars. Given that an inverted yield curve tends to compress bank net interest margins, we would expect lending activity to decline\u2014which could dampen economic activity and trigger a downturn. A cash-rich economy, on the other hand, may not feel the impact of softening bank lending as much as it has historically.<\/p>\n\n\n\n

Another possible explanation is that a recession is in the offing, it\u2019s just taking longer to materialize in this cycle. That\u2019s quite possible, but it\u2019s not something I\u2019m seeing in 2024. I think we\u2019re likely to get a rate cut from the Fed sometime later this year before a recession is evident. That could lead to a decline in short-term Treasury yields and a flattening of the yield curve, perhaps deeming the inversion indicator moot by early-to-mid next year.<\/p>\n\n\n\n

If there\u2019s a lesson to take away here, it\u2019s that relying on a single indicator to predict U.S. economic activity is not sufficient. The U.S. economy is vast and complex, and simply cannot be explained by the bond market alone.<\/p>\n\n\n\n

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If you have $500,000 or more to invest and want to get answers to the questions above, click on the link below to download this guide today!<\/p>\n","protected":false},"excerpt":{"rendered":"

An inverted yield curve has historically been a reliable recession indicator, but not this time (yet). Mitch offers his insights about what’s going on. <\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-13203","post","type-post","status-publish","format-standard","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13203","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=13203"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13203\/revisions"}],"predecessor-version":[{"id":13206,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13203\/revisions\/13206"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=13203"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=13203"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=13203"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}