Is this going to be an annual warning from you, OWETB?
This one is interesting in that the suggested predictive capacity of yield curve inversion can become a self fulfilling prophecy - but to add some perspective:
Just because yield curves have inverted immediately before the last 8 US recessions doesn’t mean every inversion has been followed by recession. 3 month versus 10 year bonds inverted back in March without generating the same reaction we’re seeing this time. And 8 US recessions isn’t a huge data set - the predictive power of yield curve inversion is far less pronounced if you include countries outside the US.
At present, in the real economy, most developed countries are experiencing growth, low unemployment, low inflation, low interest rates, wages finally ticking up, and low oil prices. So, consumers have money to spend and it doesn’t feel like a global recession is imminent - though the UK may be a special case due to Brexit.
But the big fear is fear itself - there is certainly plenty of anxiety - and the latest yield curve inversion has obviously added to it. And there are plenty of good reasons for anxiety - geopolitical risk, trade wars and protectionism, slowing growth in China, poor economic policy by incompetent Governments, and debt levels to name a few.
Fear and anxiety can feed on themselves so there are reasons to worry. But it’s also worth remembering that past recessions have often been preceded by (and in part caused by) complacency and reckless risk taking. A bit of anxiety and caution by central banks, investors, and firms may not be a bad thing - provided it doesn’t become a panic.
There will be no end to the problems afflicting mankind until economists become rulers, or, by some miracle, rulers become economists.