Wednesday, June 14, 2017

Today's Fed decision and recession indicators

The Fed makes its interest rate announcement today at 2pm Eastern (11am Pacific). If they raise rates, then a couple of recession indicators will move towards the higher probability of recession end of the spectrum. For example, there's the inverted yield curve (discussed more extensively here):


There is also the "avalanche" indicator (the yellow area indicates above-trend interest rates and recessions never seem to happen without them):


Additionally, several of the JOLTS measures are showing a slowdown relative to the dynamic equilibrium (in this graph, the hires data is starting to fall below the green line):


Up until the last couple data points, the unemployment rate was seeming to flatten out signalling a potential recession in the dynamic equilibrium model:


All of this is of course speculative, with only the inverted yield curve being a mainstream indicator. However, if the information equilibrium/dynamic equilibrium picture is correct, we are starting to accumulate several indicators of a future recession. Each on its own is definitely not enough, and the Fed could hold off raising rates today due to a low CPI inflation number (making yield curve less likely):


However, I wanted to get this out there before the Fed announcement today to both make sure I'm keeping myself honest as well as providing a test of the usefulness of the information equilibrium model.

...

Update 11:32am

They raised them.

No comments:

Post a Comment

Comments are welcome. Please see the Moderation and comment policy.

Also, try to avoid the use of dollar signs as they interfere with my setup of mathjax. I left it set up that way because I think this is funny for an economics blog. You can use € or £ instead.