An article from the July 2019 Lara-Murphy Report, “The Yield Curve and Recession” is available:
Here in the pages of the Lara-Murphy Report over the years I’ve written several pieces on a so-called “inverted yield curve” and its apparent ability to “predict” an imminent recession. On August 14,1 an important milestone was passed when the yield on the 2-year Treasury surpassed that on the 10-year—the first time this had occurred since 2007. In response, traders logged the worst day on Wall Street of the year, with an 808-point (3.1%) drop in the Dow and a 2.9% drop in the S&P 500.
In the present article, I’ll explain some of the financial media’s coverage of the story, and then I’ll show why the standard Keynesian explanation is wrong. Instead, the Austrian theory of the business cycle makes perfect sense of the yield curve’s “predictive” power. Finally, I’ll use the latest data to give my assessment of the economy.
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