Why one analyst thinks possible recession could still arrive by February
It’s been a full year since one of the U.S. bond market’s most reliable gauges of impending recessions started to consistently flash worrisome signals, and yet no downturn has materialized.
Amid the continuing debate about whether the world’s largest economy will or won’t fall into a contraction lasting two consecutive quarters, strategist Jim Reid of Deutsche Bank weighed in via a Wednesday note with the view that the window in which a U.S. downturn could still happen actually runs through next February. That’s based on how historical lags between U.S. recessions and an inverted spread on 2- TMUBMUSD02Y, 4.759% and 10-year Treasury yields TMUBMUSD10Y, 3.
Historical lags — starting from the time when the 2s10s spread goes below zero, and stays there for three months, to when a recession comes to fruition — suggest that the U.S. economy could still fall into a downturn sometime between now and early next year, according to Reid. Indeed, analysts like those at Swiss banking giant UBS are focusing on the flip side of the recession argument, by outlining all of the reasons a U.S. downturn hasn’t happened yet. They cite strong consumer savings, a resilient job market, and monetary policy by the Federal Reserve which is still not tight enough as a few of the factors holding up the U.S. economy.
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