A 2020 recession?
History suggests that “full employment” is not a sustainable state and that once we reach such a level a sudden increase in unemployment is very likely. Antonio Fatas explains that this is due to the fact that during periods when the unemployment rate is low imbalances are generated that lead to a recession. He concludes that if history is an indicator of future crisis, and given the current low level of US unemployment, a recession is likely to be around the corner.
The 2020 (US) recession
By: Antonio Fatas – INSEAD
…or a 2019 recession?
Iqbal and al. argue that one major challenge in this monetary cycle is that the fed funds rate’s recovery from the lowest level, along with a low inflation environment, may block the inversion of the yield curve and reduce the effectiveness of the monetary cycles to predict recessions. As a result, they propose a new framework that identifies a threshold between the fed funds rate and the 10-year Treasury yield which, when breached, a recession is imminent. They go on to warn that a recession in 2019, according to their model, is highly likely.
Recessions, Asset Prices Bubbles, Monetary Cycles and Yield Curve: The One Framework to Rule Them All
Authors: Azhar Iqbal, Sam Bullard, Shannon Seery
From: Wells Fargo Securities
Is the US well equipped to fight the next recession?
A more credible Fed plan to fight a possible recession in 2020, 2021, or thereafter might well boost business confidence and make the central bank’s policies more effective. At the very least, it would reassure companies and investors who, fearing that US aggregate demand will be weak in 2020, might be starting to pull back. But this third option would require an aggressive intellectual and communications effort from the Fed, and there is currently no evidence of one.
The Fed Should Buy Recession Insurance
By: Bradford DeLong – Berkeley