Killing a steady economic expansion requires a lot of effort. Triggering a US recession normally needs a huge shock. This week, several investors stated that this moment could have arrived already. The question now is whether it’s here because of the Fed’s policy mistakes or Donald Trump’s ongoing tussle with China. Bonds markets have been flashing concerns about a recession for some time now, with key stock indices already cratered.
However, Trump is placing the blame on the Fed’s decision to increase rates last year. Trump foe & NYT economics columnist Krugman holds the Fed accountable for this as well. Trump stated that raising the interest rates 4 times in a year had led to extreme consequences. Wednesday saw WH trade adviser Navarro state that the Fed ought to cut interest rates by at least half a percentage point ASAP, which would allow the Dow Jones index to rise to 30,000.
Taking such a decision is normally reserved for times of major economic crisis, not for an economy that has ongoing growth and record-breaking low unemployment figures. The 3 big indices fell by 3% on Wednesday, with the DJIA suffering its worst percentage loss ever this year. Investors have pushed yields on 30-year period Treasury bonds to record lows. What is even more concerning is that yield rates on 2-year period Treasury notes crossed the yields on 10-year period Treasury bonds, causing an inversion. Historically, inversions have always preceded US recessions. Trump took notice of this development and blasted the Fed as being clueless about the current economic situation.
This shows how the Fed’s predictions have gone horribly wrong. Last year, Chairman Powell had deemed the economy to be surging ahead with no roadblocks. Now, the US economy is slowing down for the first time since the Great Recession. Last year, the Fed was strong in its belief that the economy, stimulated by Trump’s $1.5T tax cut policy and his spending policies, would be powerful enough to require higher interest rates. A recession seemed like an unlikely event back then. It remains to be seen whether the Fed’s moves would be adequate enough for dealing with the current crisis.