Businesses have put up a tough fight against record-high inflation, supply disruptions and labor shortages for two years now. But the U.S. Treasury yield curve could possibly signal a losing battle. "The bond market just flashed a warning sign that has correctly predicted almost every recession over the past 60 years: an inversion of the U.S. Treasury note yield curve," CNN Business reported.
The curve inverted briefly on Tuesday, as the conflict in Ukraine fans the flames of inflation and the Federal Reserve begins hiking interest rates. The Fed said in a meeting earlier this month that it is considering hiking rates up to six more times this year. "The movements in the twos and the tens are a reflection that the market is growing nervous that the Fed may not be successful in fostering a soft landing," Joe Manimbo, senior market analyst at Western Union Business Solutions told Reuters.
According to the news outlet, the time between an inversion and a recession tends to be anywhere between one and two years. There is at least a one-in-three chance the U.S. economy will enter a recession in the next year, Moody's Analytics chief economist Mark Zandi told CNN. And Goldman Sachs recently reported that the U.S. economy has a 20%-35% chance of entering a recession in the next year.
However, other economists say the U.S. is not in danger of entering a recession anytime soon. "Our preferred econometric model for predicting a recession currently estimates just a 1% probability within the next two quarters. There is plenty of scope for economic growth to slow without outright contracting," according to special commentary from Wells Fargo.