As best as I can glean, this oft-repeated joke can be traced to a lecture economist Paul Samuelson gave at MIT in 1960 wherein he purportedly described the stock market's ability to suss out a recession thusly: "The stock market has called nine of the last five recessions."My Dad worked in investments at an insurance company before he retired and often jokes that economists have predicted 9 of the last 5 recessions.
I think a more nuanced position concerning the relationship of the yield curve and macroeconomic outcomes is:
1. A recession or impending recession often causes an inverted yield curve as a leading indicator, but is not guaranteed to do so (for instance, an inflationary recession/stagflation may not).
2. If the yield curve stays inverted long enough, it can cause a recession.
3. The yield curve often inverts when the Fed has a period of tightening/raising rates. I think yield curve inversion is somewhat less likely to foretell a recession when it is in response to Fed tightening than when it occurs due to changes in macroeconomic outlook alone.
Statistics: Posted by Northern Flicker — Sun Dec 22, 2024 1:13 pm — Replies 29 — Views 4371