I just read an interesting theory that recessions are caused by rate cuts. Usually, you would think that a rate cut would help prevent a recession.
it's not the rate hikes that stifle economic growth and send stocks sliding that traditionally telegraph the start of a recession - it's the first rate cut following a tightening cycle that is usually the trigger. Case in point: the last three recessions were all preceded with the Fed cutting, i.e., the Fed loosened policy within three months before the previous three recessions, cutting by 0.25% in 1991, 1.5% in 2001 and 0.5% in 2007. ... the Fed is now too late to save the economy, to wit: "the Fed eases immediately prior to a recession", which is also why the steepening yield curve we are experiencing now is a far more ominous reversal to the recent flattening trend than if the curve had merely continued to flatten.
https://www.zerohedge.com/news/2019-01-10/chart-convinced-albert-edwards-recession-imminent
Maybe the Fed should just keep hiking until the recession starts instead of trying to predict recessions. (After all, a 2.5% rate isn't that high and by itself won't cause a recession.) Instead the predictions become self-fulfilled prophecies.
No comments:
Post a Comment