Is Recession Coming?

Fidelity Viewpoints says key data suggests any slowdown is a ways off.

  • Geopolitical, supply chain, and policy changes are increasing inflation and interest rates

  • Economy is growing, in mid-cycle of the business phase when stock prices may rise despite volatility

  • Strong GDP, consumer spending, low unemployment, and rising wages are likely to prevent recession in the short term

  • History shows inverted yield curves forecast recession like autumn forecasts winter; one follows the other but nothing says when the snow will begin. Time between inversion and recession has ranged historically from 6 months to 4 years

  • Recent media predictions reacted to the inversion between 2-year and 10-year Treasurys, but the best predictor of a near recession is the 3-month versus 10-year difference. This part of the curve is not signaling a recession.

  • The business mid-cycle can last for years while the average recession is only 9 months

  • Energy is not included in the CPI, but energy prices matter less to the economy now than in the 1970s

  • Market corrections like this year are typical in mid-term election years and strong rallies often follow. Strong rallies are also common following uncertainty about interest rates and other policies. Stocks have returned almost 10% in the following year previous curve inversions.…



I think a mild recession will happen before the end of 2023, because the FED is determined to stop inflation. But the yield curve does not signal one yet.

Long-term rates have increased the last few weeks. US 30-year mortgage rates are now above 5%. 10-yr minus 3-mo Treasury = 2.83 - 0.79 = 2.04 does not signal a recession. But short-term rates might be close to 3% by the end of the year, depending on how inflation goes.

“The Yield Curve suggests that the US stock market is Fairly Valued” Updated April 7, 2022

Daily Treasury Par Yield Curve Rates

  Date     1 Mo  3 Mo  1 Yr  2 Yr  5 Yr  10 Yr  30 Yr
4/14/2022  0.37  0.79  1.84  2.47  2.79  2.83   2.92…

US FED Target Rate Probabilities
Current target rate of 25-50 bps
December 14th: 72% probability of 250-300 bps target rate…