Fears of a recession are increasing despite the U.S. economy experiencing a boom. Economics and bond investors alike are warning a recession is on its way for America.
The job market is up, with more than 90 percent of the jobs lost early in the covid-19 pandemic and employers adding 431,000 jobs in March. Unemployment has fallen to 3.6 percent.
Still, recession forecasters point to inflation as a major concern and an indicator of a looming recession.
Demand for everything from cars and homes to restaurant meals and workers has outstripped supply, causing the fastest inflation the U.S. has experienced in 40 years. Economists are skeptical that policymakers at the Federal Reserve can bring down inflation without driving up unemployment and sparking a recession.
The economy, they say, is shaky.
“It’s like trying to land during an earthquake,” said Tara Sinclair, a professor of economics at George Washington University.
A recession is “virtually inevitable,” said William Dudley, a former president of the Federal Reserve Bank of New York.
Economists stress that when short-term interest rates are higher than long-term interest rates, a phenomenon known as an inverted yield curve can sometimes signal recession.
The closely watched differential between yields on two-year and 10-year Treasury notes inverted during the week of March 27. And on April 1, the yield on two-year Treasury notes hit 2.44 percent. On 10-year notes, it lagged behind at 2.38 percent.
“This is typically a sign that bad times are ahead; a recession or at least a slump is expected,” said Steve Englander, an investment strategist at Standard Chartered Bank. “The market seems convinced this is going to end in tears.”
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Yield curves were inverted just before the recessions in the early and late 1980s. The same thing occurred again in the early 2000s and mid-2000s before recessions, The Wall Street Journal reported.
It’s not just economists and bond investors that are worried. Deutsche Bank became the first big bank to forecast a U.S. recession on April 5. “We no longer see the Fed achieving a soft landing. Instead, we anticipate that a more aggressive tightening of monetary policy will push the economy into a recession,” Deutsche Bank economists led by Matthew Luzzetti wrote in a report.
Photo: A customer walks past empty shelves at Heinen’s Fine Foods store, Jan. 13, 2022, in Pepper Pike, Ohio. Shortages at U.S. grocery stores have grown in recent weeks as new problems, like the fast-spreading omicron variant and severe weather, have piled on to the supply chain struggles and labor shortages that have plagued retailers since the coronavirus pandemic began. (AP Photo/Tony Dejak)