Key Facts About Tariffs, Interest Rates, And Economic Strength
Tariffs, interest rates, and the economy’s strength are triggering fear and market volatility. Here are the facts.
Fears of a trade war with China are all over financial cable TV news and even The Wall Street Journal is sounding an alarm. What are the facts?
Assuming a trade war with China, JP Morgan earlier this year concluded it would result in a $125 billion tariff on $500 billion worth of imports on Chinese goods
But the impact on the $20 trillion of U.S. gross domestic product would be minuscule, shaving US economic growth by just one-tenth of 1%.
Frightening headlines about Fed monetary policy have widely reported that the yield curve inverted and a recession is on the horizon.
Actually, the facts are not that bad!
One big problem is that the media are actually reporting on the wrong yield curve!
The media mistakenly report on the differential between the U.S. Treasury 10 year-bond and the U.S. Treasury two-year note.
In forecasting a recession, the Federal Reserve, which sets interest rates, says on the record that the yield curve that matters is the 10-year Treasury bond rate versus the three month Treasury bill, the Fed funds rate!
Using that yield curve, currently, the differential is nine-tenths of 1%, and that’s not close to inversion!
In the 2002 to 2007 expansion, after the yield curve narrowed to 1%, the recession did not start for another three years.
In the expansion of the 1990s, after the yield curve fell to 1%, the expansion continued for five more years before the recession hit!
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