Let’s Not Stress About the Next U.S. Recession

With recession anxieties climbing, people are increasingly worried about the Federal Reserve’s capacity to respond. I take issue with the premise: I don’t expect a recession this year, and when one does come I think it will be mild enough for the Fed to handle.

Three factors seems to be driving recession fears. First, recent data -- such as weak job growth and soft retail sales -- have shown the U.S. economy losing some momentum. Second, the Treasury yield curve recently partially inverted, that is some long-term bond yields fell below short-term yields. This is noteworthy because yield curve inversions have historically foreshadowed recessions in the U.S. Third, the current economic expansion is getting very long in the tooth -- in a few months it will be the longest in U.S. history.