Key Role in Economic Recession

23 Aug 2023 · 1 min

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In this segment, the speaker explains that the Federal Reserve historically reduces interest rates 12 to 18 months after a yield‑curve inversion occurs. He notes that the U.S. experienced such an inversion about a year ago, and that every recession since the Great Depression has been preceded by this signal. Based on this historical relationship, he argues that a Fed rate cut is likely within the next five to seven months, presenting the inversion as a reliable predictor of both recession risk and monetary‑policy response.

Now, historically speaking, the Federal Reserve tends to cut rates between a period of 12 to 18 months after every yield inversion curve. We got the yield inversion curve roughly 12 months ago. So historically speaking, like this yield inversion curve has managed to predict basically every recession dating back to the Great Depression. So it's not really something that you can argue with, and the theory and the logic behind it is very sound. So this is also pointing to the fact that a rate cut will happen anytime within the next 5 to 7 months.