Arturo Estrella, the economist who studied the link between the yield curve reversal and the likelihood of recessions, warned that in the second half of next year that probability is “very high.”
The likelihood of a recession in the second half of next year is “very high.” Economist Arturo Estrella told CNBC, who first studied the link between the reversal of the US debt yield curve and the anticipation of recessions.
At stake is the bond market, which has been under the focus of investors in recent times. Over the past two weeks, three times, ten-year US debt interest has traded below two-year interest rates, the opposite of what happens when the economy is “healthy.” This means that markets fear the short term rather than the long term, signaling that a recession may become.
This happening in the secondary government debt market has been a reliable indicator of recession in the past. “It’s been 50 years and seven recessions with a perfect track record,” says Estrella. “It is impossible to be 100% sure about the future, but I would say the likelihood of a recession in the second part of next year is very high,” he predicts.
Arturo Estrella was a professor of economics at the Rensselaer Polytechnic Institute and was in the New York Federal Reserve as an economist. While working at the Fed, Estrella studied the ten-year and three-month interest spread as an indicator of recession, which has been historically accurate. In these deadlines, the inversion has already occurred and continues.
“Those who say things are going to be different this time are probably counting on the fact that it will take two years to know for sure, so who is going to remember [these statements]?” American.
For Estrella, there are reasons to be concerned, but you also need to take several factors into consideration. “You have to see if this reversal persists,” he explains, noting that it has to stay for a month or a quarter, not just a day, to be a warning of recession.
The former Fed economist also clarified that, according to what he studied, the bond market tends to be the “sign of anticipation”, taking months before the exchanges see any effect.
