Three questions have weighed on investors’ minds for months: Will there be a recession? How bad will it be? And what comes next?
The U.S. Federal Reserve’s aggressive campaign of interest rate hikes to combat persistent inflation has amplified the risk of recession. Recent banking sector turmoil, which will likely result in tighter credit conditions, could further that risk.
“One reliable indicator of a recession is an inverted yield curve, where the yield on short-term U.S. Treasury bonds is higher than the yield on longer dated bonds,“ says U.S. economist Jared Franz. “Recent activity in bond markets suggests a recession is widely expected. In fact, this may be the most widely anticipated recession in decades.”