Is a recession on the way?

There is a lot of intense chatter and debate as to whether the Fed will be successful at engineering a "soft landing" or whether a significant growth slump or even a recession is in the cards for next year. Even for people who believe that a relatively soft landing is in store, there is the question of whether the Fed may be forced to cut interest rates at least modestly to keep the soft landing from being too hard.

My view is that the Fed will be successful and will not have to adjust interest rates at all over the coming year. The economy is stronger than a long of people give it credit for, speculation in commodities will likely taper off, and the housing sector won't collapse to the extent that many people are suggesting.

There is some amount of historical data that suggests that a Treasury yield curve inversion such as we have now tends to signal a recession within a year, but like all such historical correlations, it can never be used as an absolute guide as to what will actually transpire. In fact, the yield curve is literally all over the map, with inversions only for selected portions of the curve, but not for all portions of the yield curve. In fact, the spread between the yields of the 28-day T-bill and the 30-year T-bond is not inverted. There are a lot of practical reasons for high demand for Treasuries of longer duration, not the least of which is the funding of retirement plans and pensions as "boomers" approach retirement age.

The economy is still in the early stages of recovery from the bust after the boom and will be for several more years. The bad news is that a lot of sectors of the economy are still struggling, but the good news is that with each passing month the economy is incrementally in better shape structurally.

Is a recession coming over the next twelve months? My answer: No.

-- Jack Krupansky