Inflation vs Fed Funds Rate
In past periods, interest rates at least as high as the inflation rate were required to reliably bring down inflation. It’s hard to distinguish the current mild decline in inflation from other periods where such short and minor declines proved to be no more than ordinary fluctuations unrelated to Fed actions.
Recession Prediction
It is said that there is no better predictor of a recession than the inverted yield curve (10-yr. minus 3-mo. treasury yield). An inverted (negative) yield curve may signal that bond vigilantes believe the Fed may soon be forced to reduce short-term rates to rescue an economy headed into a serious recession.
Falling Earnings Forecasts
Approximately 90% of a stock’s price has been attributed to its earnings expectations. According to a CNBC interview with RBC’s Lori Calvasina, 2023 earnings downgrades are at the fastest pace since 2009. She expects many more are yet to fall like dominos as downgrades continue spreading to additional sectors. The additional downgrades have yet to affect market prices.
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