Recession risks puts FED on a timer.

in economy •  3 years ago 

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Wealth sometimes matters more than income -- including the unrealized (but expected) value of stock in retirement funds, mutual funds and direct investments.

You can spend wealth or borrow against it, but when your reserve shrinks by 20% or more it makes households and firms hunker down and try to gradually build it back up again through frugality.

This is not just a risk for the U.S. but for the whole world, particularly the European countries who would freeze in the dark without Russian natural gas, and many energy-intensive manufacturing industries would shut down.

For the relatively secure U.S., watch to see if the Fed can and will push short-term interest rates above long-term bond yields - an inverted yield curve. That hasn't happened yet. But we (and the Fed) should know by now what happens if it does.

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One measure of the yield curve is the gap between 2- and 10-year interest rates. A possibly better one is 3-month T-bills vs/ 10-year bonds.

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