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Stocks Fall as Bond Market Flashes a Recession Warning
When short-term interest rates rise above long-term interest rates, it’s called a yield curve inversion. It’s one of the best predictors of a recession, and it happened on Friday.

The bond market smells a recession. On Friday, stock investors caught a whiff, too.

Economic forecasters and Wall Street traders have been watching for months as interest rates on long-term United States government bonds have dropped toward the rates on short-term debt.

Investors normally demand higher yields to buy longer-term bonds, and when those long-term yields decline it can signal a slowdown in economic growth.

On rare occasions, long-term yields can actually fall below yields on short-term bonds — a “yield curve inversion” in the parlance of the markets. Such unusual occurrences have preceded every recession over the last 60 years.

And it happened in early trading Friday.

The move on Friday followed a sharp decline on yields on long-term Treasury bonds this week after the Federal Reserve decided on Wednesday to leave interest rates unchanged and signaled that it was unlikely to raise rates through the end of 2019.

But a round of dour economic data from Europe on Friday actually pushed the key bond market measure into inverted territory. The yield on the 10-year Treasury note tumbled to 2.44 percent early Friday, its lowest level since January 2018. That was less than the 2.46 percent yield on three-month Treasury bills.

There are many different ways to measure the yield curve. On Wall Street, many analysts look at the difference between yields on two-year and 10-year Treasury notes, which has not yet inverted.

But research from the Federal Reserve Bank of San Francisco has cited the yield difference between three-month Treasury bills and 10-year Treasury notes — which inverted Friday — as the most reliable predictor of recession risk.
interestrates  yieldcurve  economics  economy  usa  federalreserve  from instapaper
4 weeks ago by jtyost2
Federal Reserve cuts growth forecast, signals no more rate hikes in 2019
The Federal Reserve on Wednesday suggested it would not raise interest rates in 2019, a dramatic about-face that indicated the central bank’s worries about the economy are intensifying.

“Growth is slowing somewhat more than expected,” Fed Chair Jerome H. Powell said at a news conference. “While the U.S. economy showed little evidence of a slowdown through the end of 2018, the limited data we have so far this year have been somewhat more mixed.”

The Fed entered the year expecting growth of 2.3 percent and that two rate hikes would be necessary to keep the economy from overheating, but on Wednesday it cut its growth forecast to 2.1 percent for 2019 and signaled it was done hiking rates for the year.

The Fed pulled back from its plan to raise interest rates as Europe and China deteriorated economically and U.S. consumers and businesses showed worrying signs of lower spending. Those concerns have been amplified as companies such as FedEx predict a mediocre year and trucking volumes have declined.

The Fed’s new projections widened the already large gap between its growth estimates and those coming from the White House, which is predicting 3.2 percent this year and 3.1 percent the next. Powell declined to comment on the gulf between the outlooks, but most outside experts view the administration’s predictions as overly rosy.

President Trump and Wall Street have urged the Fed not to raise rates anymore. Trump argued that the Fed’s hikes were spooking the stock market and causing people to hold off on investments. Powell has insisted the Fed’s decisions are independent of politics, although he did acknowledge that leaders of the U.S. central bank have monitored markets “carefully,” especially after the financial crisis.

Investors initially cheered the Fed’s latest actions. The Dow Jones industrial average rallied 200 points during Powell’s news conference, but by the end of the day many began to wonder whether this was a signal that the U.S. economy is starting to catch whatever ailment much of the rest of the world has. The Dow closed the day with a 142-point loss.
federalreserve  interestrates  economics  economy  politics  government  usa  2019  business 
4 weeks ago by jtyost2
The Fed’s Rate-Raising Days Are Over. Wall Street Couldn’t Be Happier.
Money has finally started to chase this year’s stock market rally, which has been driven largely by the Fed’s sharp turn away from last year’s steady rate increases.

Just three months ago, investors were in a panic over the idea that the Federal Reserve might push borrowing costs too high and tip the United States economy into a recession.

Now, Wall Street is toying with the idea that the central bank could actually be cutting interest rates by the end of the year.

Those forecasts are evident in the market for interest rate futures, where the odds of another interest rate increase in 2019 have fallen to zero, from about 30 percent in December, while the chance of a decrease in rates has risen to more than one in five.

One reason for the changing forecasts? The Fed’s own signal to be more patient as it evaluates whether or not to keep raising interest rates. Since the central bank’s chairman, Jerome H. Powell, first spoke about this newfound patience, stocks have soared more than 15 percent.

“It’s been a night-and-day difference, the outlook for stocks going from December into the first quarter this year,” said Chris Rupkey, chief financial economist at MUFG Union Bank in New York. “And I think you could say that Federal Reserve policy was very important in underpinning the stock market rally.”

The Fed could add more fuel to this rally on Wednesday, when the central bank concludes its latest monetary policy meeting. It is expected leave interest rates untouched and further emphasize that it is in no hurry to lift them.
economics  economy  usa  federalreserve  interestrates  business 
5 weeks ago by jtyost2
What if All the World’s Economic Woes Are Part of the Same Problem? - The New York Times
"If a group of time-traveling economists were to visit from the year 2000 and wanted to know how the economy had changed since their time, what would you tell them?

You might mention that economic growth has been slower than it used to be across much of the advanced world, and global inflation and interest rates have been lower. An aging population is changing the demographics of the work force. Productivity growth has been weak. Inequality has risen. And the corporate world is more and more dominated by a handful of “superstar” firms.

The time-traveling economists would find that list rather depressing, but also would tend to view each problem on the list as discrete, with its own cause and potential solutions. “What terrible economic luck,” they might say, “that all those things happened at the same time.”

But what if those megatrends are all the same problem?

Maybe, for example, inequality is contributing to weak growth and low rates because the rich tend to save money rather than spend it. Maybe productivity has been weak not by coincidence, but because weak growth has meant companies haven’t been forced to innovate to meet demand. Perhaps industry concentration has left companies with more power to set wages, resulting in more inequality and lower inflation.

Those theories may not be definitively proven, but there is growing evidence supporting each. Much of the most interesting economic research these days is trying to understand and prove potential connections between these dysfunctions.

In recent weeks, for example, one groundbreaking paper proposes that low interest rates are fueling a rising concentration of major industries and low productivity growth. Another offers evidence that aging demographics are an important factor in weak productivity.

Even if you don’t fully buy every one of these interrelationships, taken together, this work suggests we’ve been thinking about the world’s economic woes all wrong. It’s not a series of single strands, but a spider web of them.

Imagine a person with a few separate problems — some credit card debt, say, and an unhappy marriage. That person might be able to address each problem on its own, by paying down debt and going to counseling.

But things are thornier when a person has a long list of problems that are interrelated. Think of someone with mental health problems, a drug addiction, and an inability to maintain family relationships or hold a job. For that person you can’t just fix one thing. It’s a whole basket of problems.

The implication of this new body of research is that the global economy, like that troubled person, needs a lot of different types of help all at the same time.

But for now, the challenge is just to understand it.

Why low interest rates can favor market leaders
Atif Mian, an economist at Princeton, was recently having dinner with a colleague whose parents owned a small hotel in Spain. The parents had complained vociferously, Mr. Mian recalled the friend saying, about the European Central Bank’s low interest rate policies.

That didn’t make sense, Mr. Mian thought. After all, low interest rates should make it easier for small business owners to invest and expand; that’s one of the reasons central banks use them to combat economic weakness.

The owners of the small hotel didn’t see it that way. They thought that big hotel chains were the real beneficiaries of low interest rate policies, not a mom-and-pop operation.

Mr. Mian, along with his Princeton colleague Ernest Liu and research partner, Amir Sufi at the University of Chicago, tried to figure out if the relationship between low interest rates and business investment might be murkier than textbooks suggested.

Imagine a town in which two hotels are competing for business, one part of a giant chain and one that is independent. The chain hotel might have some better technology and marketing to give it a steady advantage, and is therefore able to charge a little more for its rooms and be a little more profitable. But it is basically a level playing field.

When interest rates fall to very low levels, though, the payoff for being the industry leader rises, under the logic that a business generating a given flow of cash is more valuable when rates are low than when they are high. (This is why low interest rates typically cause the stock market to rise.)

A market leader has more to gain from investing and becoming bigger, and it becomes less likely that the laggards will ever catch up.

“At low interest rates, the valuation of market leaders rises relative to the rest,” Mr. Mian said. “Amazon becomes a lot more valuable as interest rates fall relative to a smaller player in the same industry, and that gives a huge advantage to Amazon.”

In turn, the researchers argue, that can cause smaller players to underinvest, lowering productivity growth across the economy. And that can create a self-sustaining cycle in which industry leaders invest more and achieve ever-rising dominance of their industry.

The researchers tested the theory against historical stock market data since 1962, and found that falling interest rates indeed correlated with market leaders that outperformed the laggards.

“There’s a view that we can solve all of our problems by just making interest rates low enough,” Mr. Mian said. “We’re questioning that notion and believe there is something else going on.”

How an aging population affects productivity
In another effort to apply a new lens on how major economic forces may interact, economists at Moody’s Analytics have tried to unpack the ties between demographic change and labor productivity.

No one disputes that the aging of the current work force is reducing growth rates. With many in the large baby boom generation retiring, fewer people are working and producing, which directly reduces economic output.

In terms of company efficiency, though, you could imagine that an aging work force could cut in either direction. Savvy, more experienced workers might be able to generate more output for every hour they work. But they might be less willing to learn the latest technology or adapt their work style to changing environments.

Adam Ozimek, Dante DeAntonio and Mark Zandi analyzed data on work force age and productivity at both the state and industry level, with payroll data on millions of workers. They found that the second effect seems to prevail, that an aging work force can explain a slowdown in productivity growth of between 0.3 and 0.7 percentage points per year over the last 15 years.

Mr. Ozimek says companies may not want to invest in new training for people in their early 60s who will retire in a few years. “It’s possible that older workers may still be the absolute best workers at their firms, but it could be not worth it to them or the company to retrain and learn new things,” he said.

The research implies there could be a downward drag on productivity growth for years to come.

These findings are hardly the end of the discussion on these topics. But they do reflect that there can be a lot of nonintuitive connections hiding in plain sight.

Everything, it turns out, affects everything."
interconnected  complexity  economics  2019  neilirwin  productivity  interestrates  atifmian  interrelated  inequality  growth  demographics  consolidation  corporatism  capitalism 
6 weeks ago by robertogreco
The rise of the student worker | Red Pepper
The marketisation of universities and privatisation of the students’ social reproduction has broken the walls separating the university as an academically oriented space that is partially autonomous from the demands of capital. From setting foot on campus to taking a loan to finding place to live, students today cannot escape their forcible integration into international capital’s search for investment returns in an increasingly volatile market.
mai68  students  PCF  France  TheLeft  ToynbeePolly  demo2010  UK  grants  loans  work  labour  jobs  class  debt  interestRates  financialisation  marketisation 
january 2019 by petej

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