RE:Just thought
redcoats wrote: I'd post to get an experts opinion:
IMF Raises World Economic Outlook for the First Time in a Year https://www.bloomberg.com/news/articles/2023-01-31/imf-raises-world-economic-outlook-for-the-first-time-in-a-year
I smell a lie.
The 10 year minus 2 year treasury yield has been deeply inverted which began on July 5th,2022. The 10 year minus 3 month treasury yield, which has had only 1 false signal is also deeply inverted at -1.17%. Don't ignore these signals, they are very powerful in the macro world.
We had 3 soft landing in the past; namely, 1966,1984 and 1995. The 10 year treasury minus 3 month yield produced a false signal in 1966.
Let's use simple probability and this recession indicator to determine the likelihood this environment will produce a false signal; I.e, that we won't get a recession.
10 year minus 3 month inversion dates that presaged a recession:
jan 1969
June 1973
dec 1978
nov 1980
June 1989
aug 2000
aug 2006
1 false signal :
Sept 1966
Ok, so we have a probability of 1 out of 8 that we get a soft landing. However, I will argue why this time is different than 1966. The unemployment was well below 5 % much like today but inflation was also low in 1966 which is not the case today. There has never been a time in history where unemployment was below 5% and inflation above 5% and a recession was averted. Now, the probability of a recession goes well above 90%
People often tell me that we won't get a recession because jobs are plentiful. If that's the case, then why does unemployment trough just before a recession begins? Has any of these people studied the Phillips curve relationship between unemployment and inflation? There is an inverse relationship between inflation and unemployment. In a nutshell, this says, high inflation implies low unemployment and low inflation implies high unemployment.
Monetary policy works with a lag and generally speaking it takes about a year to work its way into the economy. To be precise, a recession has occurred on average 10 months after 10s3months inversion. This gives me a start date to begin around the summer of 2023.