
Fed on lookout for recession but still sees strong economy: minutes - iamspoilt
https://www.reuters.com/article/us-usa-fed-minutes/fed-on-lookout-for-recession-but-still-sees-strong-economy-minutes-idUSKBN1JV2L2
======
reallymental
The yield curve has been flattening for a while now, especially for longer
term (10Y, 20Y, 30Y T-Bills) securities [0, 1, 2].

As confidence in the government (i.e through a trade war) dips, as interest
rate hikes become more of a reality, and as increasing amount of companies
come forth with weirdly worded statements about their 'strong financials' and
'consistent growth', everyone is running for the hills.

No one needs to toot their horn when they're on a bull run, everyone can see
it, and everyone is on their own run. It's only when no one can see you're
having (or you will have) 'strong financials' that you need to announce it.

And it seems like you need someone to announce their strong position to keep
the heard mentality of a bull run going on.

I very well might be wrong.

[0]
[https://fred.stlouisfed.org/series/T10Y2Y](https://fred.stlouisfed.org/series/T10Y2Y)
[1]
[https://fred.stlouisfed.org/series/DFII20](https://fred.stlouisfed.org/series/DFII20)
[2]
[https://fred.stlouisfed.org/series/DFII30](https://fred.stlouisfed.org/series/DFII30)

~~~
bostik
For some extra material on the yield curve, I found this via Naked Capitalism:
[https://wolfstreet.com/2018/07/05/as-the-yield-curve-
flatten...](https://wolfstreet.com/2018/07/05/as-the-yield-curve-flattens-
threatens-to-invert-the-fed-discards-it-as-recession-indicator/)

Sure, makes sense. When a very reliable recession indicator starts showing
signs of alarm, the logical option is _of course_ to come up with a different
indicator.

~~~
ianai
Per Wikipedia, the last QE ended in September of 2016. That means we’re
possibly seeing the market sans those affects. Of course there’s still
stimulating factors at play like the US tax cuts. Personally, I’m operating
under the assumption of an impending recession to last quite a while. There
are many troubling activities underway and planned.

~~~
felix_nagaand
Could you expand on the troubling indicators..?

~~~
prolikewh0a
A hollow economy built on debt with most of the country living paycheck to
paycheck with little to no savings, no real wage raises to keep up with
inflation since the 90's, doesn't sound like a 'great economy' to me. It may
be a wonderful economy for the people at the top though.

[https://www.cnbc.com/2017/08/24/most-americans-live-
paycheck...](https://www.cnbc.com/2017/08/24/most-americans-live-paycheck-to-
paycheck.html)

[https://www.vox.com/cards/minimum-wage-explained/minimum-
wag...](https://www.vox.com/cards/minimum-wage-explained/minimum-wage-history)
(for the minimum wage vs inflation graph)

~~~
ianai
Stagnant wages and a proliferation of ways to share consumables through the
“gig economy”. Just at the ground level, I see lots of new construction but I
can’t point to any projects to employ more people. Then there’s the very real
meddling with the US international trade posture and associated international
agreements.

------
HoyaSaxa
I did some research on this about 5 years ago at a former job. Unfortunately,
I no longer have access to it, but the slope of the yield curve definitely had
some interesting correlations with recessions.

My (incredibly simplistic) reasoning for the correlation is that as short term
interest rates rise (relative to long term interest rates), investors
reallocate money away from risky assets (VC / PE / Small-Cap Equities) into
short term investments (Money Markets, T-Bills). And since risky assets are
what really drive our economic growth IMO, we start to see a real slowdown in
economic output.

While the curve has been flattening, it certainly is not flat (or inverted
like it has before). I'm cautiously optimistic about the U.S. economy over the
short term (1-3 years). After that, who knows.

The Fed loves to revise data retroactively, so take the following graph with a
grain of salt, but they do publish a 'Probability of US Recession Predicted by
Treasury Spread' [1]

[1]
[https://www.newyorkfed.org/medialibrary/media/research/capit...](https://www.newyorkfed.org/medialibrary/media/research/capital_markets/Prob_Rec.pdf)

------
EGreg
How is the fed gonna sell off its 4.5T in assets including all the housing
loans it bought, or is it somehow going to destroy them?

~~~
JumpCrisscross
> _is it somehow going to destroy them?_

It could just hold them to maturity.

(Also, their total assets are $4.4 trillion [1], down from a $4.5 trillion
peak and falling about $20 billion a month [2].)

[1]
[https://fred.stlouisfed.org/series/WALCL](https://fred.stlouisfed.org/series/WALCL)

[2] [https://www.cnbc.com/amp/2018/07/05/fed-balance-sheet-
runoff...](https://www.cnbc.com/amp/2018/07/05/fed-balance-sheet-runoff-hits-
another-snag.html)

