The Clap
President of Queens College & chief economic adviser at Allianz Mohamed El-Erian said rising interest rates run the risk of sending the U.S. into a recession.
Tell me more
The Fed recently raised interest rates by 0.25%, & is only expected to be even more aggressive going forward with rate hikes to combat soaring inflation.
El-Erian warns of a “cost of living crisis” as consumers are already feeling the effects of decades-high inflation, & said that the Fed was late to have begun hiking rates only this month.
Now, El-Erian argues that the Fed’s aggressiveness due to being late to take action against inflation could hurt economic growth.
Warning signs
The yield curve, a leading indicator for possible recessions, is flattening. When short-term interest rates begin to rise above long-term rates, the yield curve starts to invert, & inverted yield curves have predicted every recession for the past 50 years. You can read more about it here.
Claps Class
A leading indicator is a measure that predicts a change or movement in another trend or other phenomenon of interest before it occurs. Here, the leading indicator is the inverted yield & the phenomenon is a recession.
