An inverted yield curve has consistently preceded recessions since 1969.
The originator of this renowned indicator asserts its accuracy in predicting an economic downturn this year.
When the yield curve inverted in November 2022, he dismissed it as a false signal.
While Wall Street increasingly predicts a soft landing in 2024, a respected economic expert, known for popularizing the leading recession indicator, maintains that a downturn is imminent this year.
Campbell Harvey, a Canadian economist at Duke University, demonstrated that an inverted yield curve—when short-term Treasury yields surpass those of longer-term bonds—has reliably anticipated US recessions since 1968.
Despite initial skepticism due to positive economic indicators, Harvey now predicts a recession in the first or second quarter of this year, attributing it to the Federal Reserve’s 11 rate hikes in the 2022-2023 cycle.
He acknowledges the yield curve’s role as a self-fulfilling prophecy, influencing spending and business behavior, leading to reduced activity.
Harvey emphasizes that the inversion itself isn’t the final recession signal; it’s when the curve de-inverts that a downturn is confirmed.
Despite the indicator’s perfect track record, Harvey believes firms’ strategic risk management may mitigate severe layoffs in this economic scenario.
He speculates about the indicator potentially losing its forecasting ability but doesn’t see that happening yet.
