Wall Street’s Most Accurate Predictor for Recessions Flashes Red Amid Federal Rate Hikes

By  //  June 14, 2022

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(FOX BUSINESS) – A closely watched recession predictor in the bond market just flashed red, spurring fresh concern that the U.S. economy is on track for a downturn this year as a result of the Federal Reserve’s war on inflation.

The spread between the 2-year and 10-year Treasury yields inverted this week for the first time since April on fears that the Federal Reserve’s aggressive approach to tackling the hottest inflation in four decades could lead to a sustained slowdown in growth.

The phenomenon – which is rare – has been a historically accurate predictor of recessions.

Yields on the 2-year Treasury note climbed as high as 3.431% during morning trading on Tuesday, rising above those on 30-year bonds, which fell to about 3.277%. The movement reflects “fears of a Fed policy error and an impending recession,” according to Mark Hackett, chief of investment research at Nationwide.

There are growing fears on Wall Street that the U.S. central bank will trigger a downturn as it raises interest rates at the fastest pace in two decades following a scorching-hot Labor Department report released last week that showed the consumer price index rose 8.6% in May from a year ago, faster than expected. It marks the fastest pace of inflation since December 1981.

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