atans1

Recession or not? Reconciling conflicting signals

In Financial competency on 14/02/2019 at 10:20 am

Further to this Recession or not? Conflicting signals reporting that the  models from JP Morgan premised on these different signals give wildly differing results

This disconnect between market jitters and robust economic indicators could disappear:

The direct effect of stock-owners feeling poorer could cut spending. The plunging stockmarket could hit consumer and business confidence, crimping spending and investment. Predictions of recession based on markets and financial indicators could influence economic behaviour and thus become self-fulfilling.

Judging by the past couple of decades, if stockmarket turmoil persists the Fed will respond by lowering its forecasts for growth. That would feed into a looser policy stance.

[…]

inflation remains subdued, having come in at or below expectations in recent months. That gives the Fed’s policymakers room to be lenient, meaning they can avoid the premature tightening they have often been criticised for. Investors may sense something the Fed does not. Playing it safe will give it time to correct course if needed.

Economist before “The case for raising rates has weakened somewhat,” the Fed chairman said at a news conference that followed the Fed’s policy meeting in late January.

More from the Economist before the Fed chickened out:

{So]ome leading economists pointed out that the new gloomy investor “narrative” could become self-reinforcing. “Suddenly, the markets are reacting as if there’s a crisis of interest rate increases,” argued Robert Shiller, the Yale professor and Nobel laureate. He pointed out that, although the Fed had been raising rates for several years, investors were only reacting to this now. “This doesn’t look rational,” he says, drawing parallels with the 1920s in terms of the sudden shift in psychology. “[Then] the earnings were high, the economy was moving well, but suddenly it crashed — and again it was talk, I think. There was a new narrative that developed in 1929, just as there is a new narrative developing today.”

There is a chance that the stockmarket will rouse itself from its slump in coming weeks.

  1. No worries man!! We’re currently in the midst of a secular bull. Relatively mild recession maybe around 2020/21. The big one will be around 2030.

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