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Inverted Yield Curve: Does it correlate to a Recession?

Updated: 12/10/19

Author: Richard J. DiGeronimo, R.D. Geronimo LTD

Many economists and experts equate the negative Inverted Yield Curve to a near term recession. As long-term interest rates on bonds reach below short-term rates, which occurred briefly in 2019, head winds discussions of a recession have permeated. However, certain economic indicators - such as high consumer spending, low interest rates, favorable real estate trends, and strong employment figures bold favorably for continued growth and prosperity. Fueling these positive trends is unemployment or full employment at its lowest point in 50 years and equity markets reaching new highs during the last quarter of 2019.

The above indicators appear to predict a bright outlook for 2020 despite the noted volatility from politics -national and global, stock prices, trade wars, weather patterns, and energy supplies yet consumer confidence remains strong. Moreover, the low interest-rate environment has been a viable source for commercial real estate along with the two Federal rates cuts in 2019 by the Feds for institutional lenders.

So, will the trade wars and political uncertainty given the election year in 2020 trigger more uncertainties or the U.S. budget deficit at nearly $1 trillion and national debt of $22.5 trillion, 106% of GDP contribute to a recession that the government will be unable to soften or help sustain?

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