Officially, the Federal Reserve does not argue that a recession in the near future is likely. At least, the “threat of a recession is not elevated,” according to Federal Reserve Chairman Jerome Powell. This stands in contrast to chatter among investors and economists about a coming contraction of the economy.
Some of this is no doubt paranoia just based upon the fact that periods of growth longer than the one we are in are considered unlikely. It’s just assumed that at some point the other shoe has to drop, and the economy will hit a wall. Mixed metaphors will spell doom and reign supreme on Wall Street.
But there are other reasons to fear a recession. The trade talks between the U.S. and China seem to be bearing fruit, but it’s hardly a sure thing at this point, especially given the heightened tensions of late. Speaking of China, growth there has begun slowing as its inexorable climb out of poverty is reaching the point of diminishing returns. And let’s not forget the instability in Europe as the United Kingdom and the European Union figure out how to get along after their divorce.
All of these factors combine to make markets- and those who study them- nervous. It’s that nervousness the Federal Reserve is likely to take into account the next time they meet to decide whether or not to raise interest rates. Lower interest rates are generally expected to promote growth by keeping money circulating in the market. High interest rates serve as a way to pump the brakes on growth to prevent inflation. Lower interest rates, then, shows a lower confidence in continued growth.
Lower interest rates are a good thing for a lot of people. But they could be a bad omen of things to come.
