We’re not quite at the point of a full-blown recession happening, but there are indicators we’re heading that way.
Analysts talked a great deal this week about an “inverted yield curve.” To those not familiar, the yield curve is a comparison of U.S. bonds and their expected returns to individuals who invest in them.
A Treasury yield curve becomes inverted when the short-term bonds have higher yield outcomes than long-term bonds. Why is this important? A bond’s yield can grow due to higher demand for that type of bond. So if the 2-year bond has a higher yield than the 10-year bond, it is likely due to the fact that more people believe the short-term investment is better for them.
Which brings us up to speed to talk about this week’s developments. The yield curve became inverted, and Wall Street (as well as other world markets) responded accordingly. On Wednesday, for example, the Dow Jones Industrial Average dropped by 800 points, CNN reported.
That sparked recession fears for investors. As prior reporting from HillReporter.com points out, the yield curve inverting is a trusted predictor of recessions (one happened just before the 2007 Great Recession, for example).
— Tara Dublin (@taradublinrocks) August 15, 2019
Would a recession in the near future be President Donald Trump’s fault? On that question, it’s a bit murky. Many an investor will tell you, presidents don’t affect economies, for the most part. But others may point out that Trump’s economic policies — his tariffs and other isolationist-like trade moves, for instance — could have shaken investors’ faith in the economy.
Trump has been happy to brag about the economy, of course, whenever it has done well during his first two years of office. On days when the market has tanked — like on Wednesday — he has tried to pass the burden of responsibility off elsewhere, like on the Federal Reserve, the Washington Post reported.
Regardless of whether Trump is directly to blame for a recession, it won’t be good news for him either way. Presidents don’t tend to fare well if a recession happens within one-to-two years of their attempted re-election. Whether the blame is deserved or not, the American people tend to reward economic success to incumbent presidents, but also look down upon the party in power when economic failings happen.