馃捀馃寪 A LOOK AT THE GLOBAL ECONOMY: WHAT'S NEXT? 馃寪馃捀
A well-known indicator that could signal a recession is the yield curve between the 10-year minus 2-year interest rates of US Treasury. As I mentioned in a previous article [ https://jjplindex.blogspot.com/2023/12/expectations-2024-interest-rates-and.html ], when the curve is inverted (short-term interest is greater than long-term interest, or index is below 0), a kind of recession has occurred after 6 to 24 months (when the curve is positive). This has coincided in 80s decade, in 1990, in 2000 and 2006.
From 2022 to August 2024, it is still inverted. The cause was because the inflationary wave that occurred after the excess of liquidity and social stimuli whose pretext was the pandemic. However, since 2019, there was a plan to inject liquidity into the financial system in order to produce inflation. Then, the FED should control it with traditional monetary tools. The goal was to align monetary and fiscal policy, and have tools to boost the economy in the event of a financial crisis [Source: https://www.blackrock.com/corporate/insights/blackrock-investment-institute/publications/global-macro-outlook/august-2019 ].
Perhaps, the difference today is that the short-term interest is falling faster but the long-term not. However, the most important is the last reports about unemployment. In light of this, alarm bells have been raised for activating Sahm's Rule (by Claudia Sahm, FED's former). It talks about the 100% probability of recession when the three-month moving average of the unemployment rate rises by at least half a percentage point (0.5%) above its lowest point in the previous 12 months.
Sahm has declared that maybe this time it might not happen because there has been no destruction of demand, but rather the strong migration that there is, has increased supply, causing an imbalance. Nevertheless, everything could change if demand is destroyed.
Finally, it is curious if one takes into account the interest rate curve too. In fact, this data catalyzed the Japanese Flash Crash [ https://jjplindex.blogspot.com/2024/08/japanese-bloodbath-why.html ]. At least, curiously, many countries have held elections, and some of them early. Here, someone wants a 2025 free from any pretext for financial or geopolitical turbulence. Will a black/white swan occur?
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J. Joel Padilla
Copyright: Joel Padilla 2024
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