Fed Paper Predicts Another Recession in Next Couple of Years

Fed paper reports sinking economy and predicts another recession in next couple of years.

Travis Berge, Fed scholar and professor at University of California, used data from Leading Economic index produced by the Conference Board, and prepared a paper that predicts another recession for the US in next couple of years.

Most economists and researchers, by looking at the report, agree on the point that chances of another recession are rising, and if the administration neglects these indicators, impending economic downturn is inevitable.

These researchers tried three experiments, making use of leading indicators like index components and other elements, mentioned in the data. However, this test didn’t include bullish current indicator. The spread of Treasury bond interest rate and fed fund rate is quite steep, which is a strong indicator of economic expansion. They believe the Fed has interest rate near-zero, which inversely makes the steep yield curve an unavoidable conclusion.

Based on this steep curve, it becomes easy to say a recession would arrive any time in next two years. However, many believe two years is very long time to predict any thing concrete like a recession, and major steps taken today would actually work towards improving the economic condition.

However, the Federal Reserve is still unclear about how they would respond to weakening economic indicators. It seems like the only option they are left with is inducing central bank to buy more assets to keep deflation under control.