[ The inversion of the U.S. bond yield curve seriously affects the economy👀 ]
📝Definition of yield inversion: short-dated bond yield > long-dated bond yield
In 1986, Duke University economist Campbell Harvey proposed that the U.S. debt yield curve can be used to predict real economic growth; from the past history, once the yield rate inversion occurs, it is often accompanied by the advent of economic recession
There are three reasons for the inversion this time:
📍Excess demand in job market
It is rare in history that there will be excess demand in the job market after the epidemic. In such an environment, people can quickly find jobs, helping the economy to better absorb slowdown or negative growth. In addition, the layoffs in the technology industry at the end of last year, such as Meta, Twitter, etc., basically the engineers who were laid off generally had good technical skills, so the unemployment time was also very short, which is similar to being fired by Lehman Brothers during the 2008 global financial crisis employees, have nowhere to go for a while, the two are very different
📍The financial status of consumers and the financial industry are better
The financial situation of American consumers is healthier than in the past. Even if house prices have fallen recently, contagion is unlikely because consumer balance sheets are in much better shape than in the past. In addition, the 2008 financial crisis started in the financial and banking sectors and spread rapidly, making the economic recession spread rapidly, but this time the financial and banking industries are relatively healthy and are unlikely to exacerbate the economic recession
📍Inflation expectations and yield curve will affect market behavior
If the bond yield curve is adjusted by inflation expectations, the short-term inflation expectations are high and the long-term inflation expectations are stable, which will depress economic growth, but a recession may not necessarily occur, especially in recent years when the media spreads that the yield curve is inverted This makes businesses less likely to spend heavily on capital spending and consumers more cautious, behaviors that make recessions less likely
Judging from the above three points, the serious inversion of the long-term and short-term interest rate difference this time is mainly due to the fact that the long-term interest rate is suppressed by inflation expectations, rather than just reflecting the expectation of economic recession. At the same time, core inflation has not yet slowed down rapidly, making it difficult to quickly Shift to rate cuts
After the announcement of the latest PCE prices in May, according to the Multivariate Core Trend (MCT) model released by the Federal Reserve Bank of New York, the annual increase of MCT in May slowed down slightly to 3.52% (previously 3.54%), and the growth rate of new lease prices will slow down in the future , employment supply and demand continue to ease, the future will further see the core inflation broad and trend decline
Therefore, it should be difficult for the Federal Reserve to sharply raise the end point of raising interest rates again. The severe yield rate inversion and the high-yield U.S. debt are expected to be eased with the suspension of interest rate hikes in the future.
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