Cleveland Fed Researchers: No Risk of Double Dip Because Maybe We Did the Math Wrong
Crain's Cleveland (who knew there was a Crain's Cleveland?):
“The so-called yield curve suggests growth won't slow to less than 1 percent and about a 12 percent chance of a recession in the next year,” according to the report by Joseph G. Haubrich, head of the banking and financial institutions group at the Cleveland Fed, and Kent Cherny, a researcher.
Bloomberg says the market rates “rates conflict with growing concerns that the U.S. economy will contract for the second time in three years.”
In their report, Messrs. Haubrich and Cherny note that the expected chance of the economy being in a recession next year, though still small, has risen in each of the last two months.
But they say it “might not be advisable to take these number quite so literally, for two reasons. … First, this probability is itself subject to error, as is the case with all statistical estimates. Second, other researchers have postulated that the underlying determinants of the yield spread today are materially different from the determinants that generated yield spreads during prior decades.”
Differences could arise, they say, “from changes in international capital flows and inflation expectations, for example. The bottom line is that yield curves contain important information for business cycle analysis, but, like other indicators, should be interpreted with caution.”
It overjoys me when they say things like that, I hope someone is paying attention so we can say I told you so at some point not too far down the road.