Recession fears are on the rise as the Federal Reserve gears up to fight inflation. Many stock-market investors are already playing defense and may wonder if those strategies have more room to run.
But first, how big of a worry is a recession? Google searches for the term have been solidly on the rise, according to trend data from the search giant charted below:
The fear is understandable. While the job market remains robust, inflation running at a four-decade high has consumers down in the dumps, according to sentiment readings.
Fed playing catchup
The Federal Reserve is seen belatedly scrambling to tighten monetary policy at a breakneck pace — including the potential for multiple, outsize half-percentage point increases in interest rates. It’s also contemplating a much faster wind down of its balance sheet than in 2017-2019.
Fed officials, of course, say they’re confident they can tighten policy and bring down inflation without crashing the economy, achieving what economists refer to as a “soft landing.” There are prominent skeptics, including former Treasury Secretary Larry Summers, whose early warnings of surging inflation proved prescient.
Key Words: Recession is now the ‘most likely’ outcome for the U.S. economy, not a soft landing, Larry Summers says
Eyes on the curve
And then there’s the yield curve.
The yield on the 2-year Treasury note
briefly traded above the yield on the 10-year Treasury note
earlier this month. A more prolonged inverting of that measure of the curve is seen as a reliable recession indicator, though other measures that have proven…