The bond market is sending a clear signal to the equities market and the Fed that we may already be in a recession. This could lead to stagflation if the Fed continues with its aggressive hawkishness.
However, the problem is that the Fed does not use current indicators. Instead, it relies on lagging indicators, which can be problematic in a world where professional traders and smart money are using alternative data sources. These sources give real-time indications of consumer behavior, lending, and other important economic factors that the Fed should be considering.
The Fed should be looking at the bond market signals and incorporating them into its overall considerations. However, it’s not doing so, in the speaker’s estimation. Lagging indicators can lead to outdated and insufficient decision-making by the Fed, which could be a significant concern in our rapidly changing economy.
In conclusion, the bond market is giving a clear warning about the potential for recession, and the Fed needs to incorporate real-time indicators, including those from the bond market, to ensure that it makes the best decisions for the economy.