Recession Signs Everywhere

Cracks Appearing

First Domino

Constrained Hiring

Tariff Trouble

A Virtual Pass to the SIC

RIP, Andrew Marshall, The Last Warrior

Cleveland, Chicago, Dallas, Austin, Dallas, and Back Home to Puerto Rico

This month, the Federal Reserve joined its global peers by turning decisively dovish. Jerome Powell and friends haven’t just stopped tightening. Soon they will begin actively easing by reinvesting the Fed’s maturing mortgage bonds into Treasury securities. It’s not exactly “Quantitative Easing I, II, and III,” but it will have some of the same effects.

Why are they doing this? One theory, which I admit possibly plausible, was that Powell simply caved to Wall Street pressure. The rate hikes and QT were hitting asset prices and liquidity, much to the detriment of bankers and others to whom the Fed pays keen attention. But that doesn’t truly square with his 2018 speeches and actions. The Fed’s March 20 announcement suggests more is happening.

I think two other factors are driving the Fed’s thinking. One is increasing recognition of the same slowing global growth that made other central banks turn dovish in recent months. The other is the Fed’s realization that its previous course risked inverting the yield curve, which was violently turning against its fourth-quarter expectations and possibly toward recession (see chart below, courtesy of WSJ’s “Daily Shot”). That would not have looked good in the history books, hence the backtracking.

On the second point… too late. The yield curve inverted, and recession forecasts became suddenly de rigueur among the same financial punditry that was wildly bullish just weeks ago.

My own position has been consistent: Recession is approaching but not just yet. Yet like the Fed, I am data-dependent and the latest data are not encouraging. Today, we’ll examine this and consider what may have changed.