E Odds Rising For Inverting Yields, Falling Stocks & Recession

Economic research tells that in a recession, the Fed needs to cut rates at least 3% to get stimulus. . .

But interest rates after today sit at 1 - 1.25%. How are they going to be able to cut 300 basis points if they're only at 1%? Well, they can't. And at their current pace of hiking, it will take at least another 1.5 years. 

They are racing against time and deteriorating economic growth. Which will come first? Their 3% target or a recession? 

The Fed is raising rates only to be able to cut them. And it is beginning to quickly try and clean some of their bloated balance sheet so that they can engage in more bond-buying during the next economic rut.

The sad irony is that the Fed's tightening will most likely cause the next recession. So either way, they need to get rates up as soon as possible, no matter the economic data. 

But the bond market is catching on. . . 

Interest rates are heading toward inverting at this pace. This is when short-term rates rise above long-term rates. Or rather the Fed funds rate (FFR) is higher than the 10-year treasury. 

Inversion tells us there is doubt in the economy. Bond investors expect deflation and the Fed to lower rates in the future to combat economic slowdowns. So they lock up longer term yields in advanced. 

An inverted yield curve means investors believe they will make more by holding onto the longer-term bond than if they bought a short-term Treasury bill. That's because they'd just have to turn around and reinvest that money in another bill. If they believe a recession is coming, they expect the value of the short-term bills to plummet sometime in the next year. That's because the Federal Reserve usually lowers the Fed funds rate when economic growth slows - wrote TheBalance

Inversion has preceded the last 9 recessions since the 1960's. . .

The idea that the Fed is rushing to hike, when data doesn't justify it, to be ready for the next recession is becoming clear. And while bond investors are realizing it, stock traders clearly believe the whole recovery talk.

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