LONDON: The fastest rate-hiking cycle in decades and inflation nearing double-digits have got investors scouring market moves and data to gauge whether the world economy is headed for recession.
Business activity is slowing, many stock indexes are in “bear” territory, while higher borrowing costs are squeezing corporate and consumer spending.
The U.S. Federal Reserve last week upped interest rates by 75 basis points, its biggest single rate hike since 1994, and has signalled its commitment to containing price pressures even if it brings about a growth downturn.
“Inflation is still rising and that means the Fed will hike more and move more rapidly, which will put downward pressure on the economy, so that’s adding to recession fears,” said Seema Shah, chief strategist at Principle Global Investors.
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“There are also growing signs of economic weakness coming earlier than expected.” The World Bank currently expects 2022 global growth at 2.9%.
The U.S. Treasury yield curve has a track record of predicting recessions, especially when two-year yields rise above 10-year maturities. At around5 basis points (bps) , the spread between the two segments has flitted in and out of negative territory recently, so recession watchers are paying attention.
