All-Star Break
Submitted by Atlas Indicators Investment Advisors on July 28th, 2022Baseball season is about half way over with the All-Star Game taking place this coming Tuesday. Fans of the Los Angeles Dodgers have, thus far, been treated to a winning season. Of course, October is many months away, so it’s premature to call this year’s team champions. Contrarily, the calendar year is just beyond the half-way mark, and the Federal Reserve isn’t winning over many fans this season.
Like a nine-inning game, recessions take time to develop. This go around, however, the central bank seems to be hastening the process with their monetary policies. They are aggressively swinging their bat trying to defeat inflation, an opponent which has tallied many wins this year as various measures of price gains reach highs not seen in decades.
While the Fed could end up beating its opponent, there are likely to be many losers, the economy included. Some of the forward-looking measures have been weakening in the past several months. Take Dr. Copper for instance (find out how it earned its Ph.D. here), which is down about 30 percent from its high earlier this year. Interest rates are signaling something similar. Earlier this week, the yield curve showed another sign of looming economic weakness when the two-year yield on Treasury notes increased to a higher level than the 10-year yield (aka yield curve inversion).
Deceleration is not something you want to do when charging toward the next base. Nor is it something you want to see in an economy, yet it’s probably the word-of-the-year at Atlas (the keys which spell deceleration are getting worn on my keyboard). Indicators slow before they go into outright contraction.
The Central Bank is in a game of pickle. It’s caught between inflation and recession. Like runners in most pickle situations in the major leagues, the Fed is probably going to succumb to one of its opponents. Keeping both at bay seems like an impossible task right now. A sacrifice fly (at the expense of our economy) might be the best play Jerome Powell and team have at this point.