OPINION: Yield curves are signalling a US recession. But strong households, corporates and job demand all say that the country should just shrug off a downturn.
the Fed tightens with unemployment this low and wage growth this high, or the Fed tightens with inflation this high.A sustained inversion of the yield curve is problematic for maturity transformation and is a signal that should be respected. But the inversion has so far not been sustained.The inversion this time is also occurring with the sharpest foreshadowed tightening in history. The curve usually inverts after most of the cycle’s tightening has been delivered.
The strength of the US consumer also suggests the effects of Fed tightening are likely to be felt more intently outside the US, than within it. Some developing economies, for instance, are already feeling the strain of high oil and food prices, and will also have to manage increased US dollar funding costs.
Consider at present in the US there are nearly two job vacancies for each applicant. The level of excess demand in the labour market is such that even two quarters of modest negative growth might still see the level of conditions quite solid from a historical perspective.
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