Inverted Yield Curve Signals Likely 2023 Recession, Though Impact May Be Milder Than Past Downturns
-
An inverted yield curve has preceded every recession since 1969. Campbell Harvey showed the curve's power as a recession predictor.
-
The curve inverted in late 2022. Harvey initially thought it may be a false signal but now believes a recession is likely in 2023.
-
The recession is partly a self-fulfilling prophecy - the signal itself alters business behavior in a way that leads to a downturn.
-
Harvey notes that the inversion isn't the final recession call - that comes when the curve de-inverts.
-
Firms are managing risks better this time, so Harvey hopes severe layoffs can be avoided.