Published Friday, July 6, 2018 at: 7:00 AM EDT
Even the old gray lady, The New York Times, sometimes sensationalizes financial news.
At a time when facts are under assault, The New York Times must be held to account for incorrectly asserting that the yield curve was - quote - perilously close to predicting a recession.
The yield curve is not even close to predicting a recession!
The yield curve, a byproduct of Alexander Hamilton's financial system for managing the U.S. economy, is the key lever of the national bank, the U.S. Federal Reserve, for stimulating or slowing growth of the economy.
The yield curve is generally defined as the difference between the 10-year Treasury bond rate and the short-term lending rate set by the Fed.
Subtracting the short-term rate from the long-term rate results in the yield curve that's shown here over the last three economic cycles.
Before every recession in modern U.S. history, the Fed inverted the yield curve by raising the short-term lending rate it extends to banks higher than the 10-year Treasury bond rate.
Now, judge the yield curve's recent performance for yourself: Does it look like it is perilously close to predicting a recession, as reported in The New York Times?
No, it's not even close!
Though sensationalizing the yield curve may sound oxymoronic, the Old Gray Lady for two days on the home page of its digital edition - and on page–one of the business section of its New York print edition - incorrectly colored the facts in the minds of millions of readers by showing the yield curve of the two-year Treasury bond instead of the rate at which the Fed loans money to banks, the Fed funds rate. That's the yield curve that matters more than the two-year versus the 10-year rate curve!
The Standard & Poor's 500 gained 1.5% last week and closed on Friday at 2759.82, just 4% from its all-time high - despite a looming trade war with China, U.S. political polarization, and fractures in the NATO alliance.
As the 109-month expansion closes in on the post-War record for longevity, investors may become more susceptible to believing misguided analysis like last week's story in The New York Times, and it is wise to keep in mind that, even the best team of financial reporters and editors at America's most treasured journalistic institution, plays on fear to grab readers' attention and gets important facts wrong about investing sometimes.
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This article was written by a veteran financial journalist based on data compiled and analyzed by independent economist, Fritz Meyer. While these are sources we believe to be reliable, the information is not intended to be used as financial advice without consulting a professional about your personal situation. Indices are unmanaged and not available for direct investment. Investments with higher return potential carry greater risk for loss. Past performance is not an indicator of your future results.
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