Earlier in 2019, the Federal Reserve announced a pause in its program of interest rate hikes, re-energizing the stock market in the process. Now the money market appears to be anticipating a cut in the federal funds rate before 2019 is over, which, in turn, suggests that the Fed is increasingly more worried about preventing a recession than combatting inflation. Deutsche Bank projects that the fed funds rate will end 2019 at 2.15%, implying a 60% chance of recession within the next 12 months, Barron's reports. The fed funds rate was 2.39% on May 20, 2019 and in a target range of 2.25% to 2.50%, per the Federal Reserve Bank of New York.
“The renewed trade tensions create downside risks which were deemed to be negligible 2 months ago,” Deutsche Bank observes. Meanwhile, other observers see heightened recessionary risk. For example, Paris-based investment banking firm Societe Generale has been pointing to negative signals from two indicators that they find to have excellent predictive track records historically, the yield curve and a proprietary measure of its own. The table below summarizes the key findings from Deutsche Bank...
