May 13, 2019
There are recession signs everywhere.
And you can tell the Federal Reserve understands because it isn’t raising interest rates.
The Fed’s rate hikes and asset tightening were adversely affecting markets, liquidity, and the types of people the Fed pays attention to (bankers and others).
But is there more to the story than ceasing rate hikes?
For instance, there seems to be an increasing recognition by the Fed of the same slowing global growth that made other central banks turn dovish in recent years.
However, the more the Fed tightens, the more it risks further inverting the yield curve.
The global economy clearly hasn’t recovered from the last recession like it did in previous cycles. Yes, the stock market did well, as did real estate, but it’s been mild otherwise.
Unemployment is low, which is good, but wage growth is sluggish. And rising asset prices contributed to even greater income inequality, which was partially responsible for spurring populist and semi-socialist movements around the world.
Now, the U.S. has a been known for its stability. The same certainly is true of Australia, which hasn’t had a recession since 1991 – no other economy can say the same.
But while not in a recession, even Australian growth is slowing.
A housing bubble began the decline for Australia. But it’s been compounded by a slowdown in the shipping and transportation industries.
In fact, FedEx revenue is down. The company’s financial brass cut their guidance for the rest of the year, citing slowing international macroeconomic conditions and weaker growth.
The shipping and transportation industries are known as leading indicators of economic health. Could that be a canary in the coal mine? A nasty domino effect could be upcoming.