Amid growing fears of an impending recession, economist Ed Yardeni has offered a more optimistic perspective, arguing that traditional recession indicators, such as the inverted yield curve, may be misleading in the current economic environment. In his latest analysis, Yardeni pointed to several key factors that suggest the U.S. economy remains on stable ground.
Yardeni emphasized that credit conditions have held up remarkably well despite the Federal Reserve’s tightening of interest rates. He noted that the Fed’s Senior Loan Officer Opinion Survey shows that fewer lenders have tightened their lending standards this year, with expectations for a broader loosening in the upcoming quarter. According to Yardeni, a credit crunch—often a precursor to a recession—has not materialized, which contradicts the typical narrative associated with an inverted yield curve.
Additionally, Yardeni highlighted that credit spreads, a measure often used to gauge economic distress, have not reached levels indicative of a brewing crisis. Even during recent market volatility, credit spreads remained below the highs seen in 2022, further supporting the view that the economy is not on the brink of a downturn.
Yardeni also pointed to the Federal Reserve’s quantitative tightening program as a factor that may be distorting the yield curve. As the Fed reduces its balance sheet by allowing assets to roll off, a larger proportion of long-term Treasuries remains, influencing the shape of the yield curve. Yardeni argues that this technical factor, rather than economic weakness, is driving the current yield curve inversion.
Moreover, Yardeni highlighted the strong performance of corporate earnings as a sign of economic health. He noted that the S&P 500 earnings-per-share rose 10.9% year-over-year in the last quarter, setting a new record. This robust earnings growth, according to Yardeni, is a bullish indicator for both the stock market and the broader economy.
In summary, while recessionary signals have sparked concern on Wall Street, Yardeni remains confident in the underlying strength of the U.S. economy. He suggests that the feared recession may not materialize, as key economic indicators continue to point to resilience rather than decline.
