Ron Insana on rates

[ajacobson]

Ron Insana


Please read carefully. Arturo has been my "yield curve Yoda" for years! The 3-month to 10-year spread is now .788%, less than one tick away from the below-mentioned "get ready" moment ... so ... get ready!
From Arturo Estrella, former NY Fed economist who did the seminal work on the yield curve as an economic indicator:
"When the #FederalReserve is done tightening, how to know if they triggered a recession? If the monthly 10yr-3mo Treasury spread is under .78%, get ready. Less than .3%, batten down the hatches. If negative, they should have been paying more attention. http://financeecon.com/tightening.html."

 

[M.W.]

I am highly suspicious about this approach to research because the tenet mostly rests on the assumption that the Fed looks at the same indicators and metrics than it has looked at 30 or 40 years ago and that the Fed is some sort of black box that makes the same decision based on certain variables when in effect it is a living being that changes each time governors are changed, when voting rotates, and when economic researchers and advisors move around. Different Fed governors make completely different assessments and are guided by different sets of base beliefs about the economy and what the right treatment might be.

So, looking at some indicators 30 years ago and how the Fed reacted back then and then extrapolating to today is imo a pretty poor approach.

Ron Insana


Please read carefully. Arturo has been my "yield curve Yoda" for years! The 3-month to 10-year spread is now .788%, less than one tick away from the below-mentioned "get ready" moment ... so ... get ready!
From Arturo Estrella, former NY Fed economist who did the seminal work on the yield curve as an economic indicator:
"When the #FederalReserve is done tightening, how to know if they triggered a recession? If the monthly 10yr-3mo Treasury spread is under .78%, get ready. Less than .3%, batten down the hatches. If negative, they should have been paying more attention. http://financeecon.com/tightening.html."

 

[zdreg]

So, looking at some indicators 30 years ago and how the Fed reacted back then and then extrapolating to today is imo a pretty poor approach.

"History never repeats itself. It just rhymes."

 

[M.W.]

Yeah I tend to agree generally, but specifically about the Fed, different economy conditions call for completely different decisions. The 2008 crisis called for entirely different decisions than the covid economic crisis, for example. The yield curve tells a certain story but it is not a predictor of future economic conditions, simply a reflection of the CURRENT assessment by the market about the future. This might change tomorrow.

"History never repeats itself. It just rhymes."