Economics Weekly: Recession Risks Rise – Yield Curve vs. Real Economic Data

Friday, August 16, 2019

Financial markets are caught in yet another tug-of-war between data for the domestic real economy, which has been notably decelerating but not collapsing (as this week's retail sales data highlighted), and fears related to the escalating trade dispute, a slowing in global growth, an inverted yield curve, and financial market instability. While such tugs-of-war between the real economy and financial markets are nothing new and are the grist of all financial market economists, what has changed is that the risks around the outcomes from these events have increased in recent years. And this past week, it seems clear that financial markets have given the risk dial another firm twist to the right. In this week's Economics Weekly, we discuss this issue, why it has arisen, and what it means for the Fed.

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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.

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