Nov 282018

Two reasons for a recession in 2020. While the economy has been booming, and the stock market has been doing well, nobody has spoken about a recession. But with the latest economic upheaval, caused by the reversal in the stock market, the slow down caused by rising interest rates, and the trade dispute with China, undertones are taking shape that a recession is on the horizon. The only question seems to be if, not when a recession will happen.

Two reasons for a recession in 2020. Maybe the best reason to think there won’t be a recession in 2020 is that so many people are saying there will be. The idea being that the more people are worried about something, the more they should do to try to avoid it–right ? You’d certainly think so but not always. Consider the housing bubble, Economists including Paul Krugman and the Center for Economic and Policy Research’s Dean Baker spent years warning about the impending danger, but it didn’t matter. Policymakers didn’t do anything, and everyone else was too busy trying to get in while the getting was good to concern themselves with whether it was sustainable or not.

Which brings us to our two big risks today. The first is that interest rates, though still by pre-crisis standards, are starting to get a little high by out post-crisis ones. The best recession predictor we have–the difference between the government’s 10 year and 2 year borrowing costs–is beginning to flash yellow. So when long term rates are lower than short term ones, what’s known as the “inverted yield curve”, it’s telling us that markets think the Federal Reserve is going to have to stop raising rates and start cutting them in the near future.

And that brings us to the second problem, higher borrowing costs, slower housing sales, and consumer spending, which all leads to a slowdown int he markets. This hasn’t happened yet, but you can see it on the horizon as the Federal Reserve continues increasing interest rates.

  •  11/28