Seven (Business) Days in May

[updated 6/3] Undervalued currencies as countervailable subsidies, tariffs on Mexico, flash mfg PMI drops, Drumpf again insists China pays US tariffs…so the yield curve inverts!

Figure 1: [Updated 6/3) Treasury 10yr-3mo spread (blue, left scale), 10yr-2yr (red, left scale), 5yr-3mo (teal, left scale), in %; 6/3 interest rates on-the-run at 1:30PM EST, and Economic Policy Uncertainty index (black, right scale). Source: Fed via FRED, US Treasury, and, accessed 6/3/2019.

Update 6/1:

Longer span of data for all these series at monthly frequency (Figure 2), and for “term premium” adjusted spread (as noted by Jim in his post) in Figure 3.

Figure 2: Treasury 10yr-3mo spread (blue, left scale), 10yr-2yr (red, left scale), 5yr-3mo (teal, left scale), in %; and Economic Policy Uncertainty index (black, right scale), 1985M01-2019M05. NBER defined recession dates shaded gray. Trump administration shaded orange. Source: Fed via FRED, US Treasury, NBER, and, accessed 5/31/2019.


Figure 3: Treasury 10yr-3mo spread (dark blue, left scale), 10yr-3mo spread adjusted by Adrian, Crump, Moench/NY Fed estimate of term premium (blue), in %; and Economic Policy Uncertainty index (black, right scale), 1985M01-2019M05. NBER defined recession dates shaded gray. Trump administration shaded orange. Source: Fed via FRED, US Treasury, NY Fed, NBER, and, accessed 5/31/2019.


38 thoughts on “Seven (Business) Days in May

  1. Hans

    So what formal evidenced does the Right Honorable Professor
    have which would support his conclusion of a Donald Inverted
    Yield Curve?

  2. Moses herzog

    I bought a near $5 (!!!!!) whole pecan pie (highway robbery in my book) and name brand mint oreo cookies last time I was at the store (an obvious error in judgement on my part). I’m doing what I can to keep you MAGA patriots out of the gutter. I feel winded as it is people. Cherry soda without caffeine (!!!!!) (WTF was I thinking!?!?!?). My sacrifices to contribute to the GDP for the red cap MAGA dunces are endless.

  3. Moses Herzog

    I’ve got an idea how we can support Orange Excrement during these tough times when people are trying to unveil his dirty undies. How about we start a commercial campaign with a cool/hip music jingle. I was thinking we can “borrow” this jingle a church used back in the late ’80s and change the name slightly and call it “Catch the MAGA”. Maybe white trash or “salt of the Earth” type white people who don’t know Medicare is a government program walking around with HUGE smiles wearing red caps. What are you guys thinking?? Same melody and lyrics, except where they say “spirit” we say “MAGA”—- “Catch the MAGA”.

    I’m feeling super excited about this idea. It took me a long time to think of this, don’t burst my bubble please.

  4. Moses Herzog

    Another fictional story about American agriculture from the evil Hollywood liberals. The acting seems decent though:

    I hope CoRev can do one of his deep digging investigative reports on who is making up these stories. Could it be the Communist Canadians who have been trying to destroy America for decades??? Only CoRev and donald trump can tell us what is behind this (most likely Canadian) conspiracy against the American homeland.

  5. pgl

    At least Trump is not putting Laffer on the Federal Reserve!

    Trump Gives World’s Worst Economist the Presidential Medal of Freedom

    There may be no man alive who has done more damage to America’s understanding of economics than Art Laffer. So, of course, Donald Trump is now awarding him the Presidential Medal of Freedom.


    I guess anyone can get this medal. Fortunately Trump has no say on who is awarded the Nobel Prize.

    1. pgl

      This is another rich and great discussion from Brad Setser. His links also provide a lot of priceless information.

    1. Moses Herzog

      @ Not Trampis
      I know I am going to regret asking this, but what the hell precipitated this question??

      For whatever it’s worth, when I was a child (pre-teens) I thought “Gunfight at the O.K. Corral” was one of the coolest movies I had ever seen (only to be challenged by “The Magnificent Seven”) and that the tuberculosis infested Doc Holliday was the coolest on-screen character ever . As my tastes matured (hopefully) I came to regard Burt Lancaster as one of the most melodramatic and insipid actors in all of Hollywood, to the point he’d only need act as normal when parodying himself in “Tough Guys”. You’d be hard pressed to find ANY part Lancaster played, where he wasn’t, as the thespians say “over the top” (and not in a good way).

      “In real life” as the kiddies say, Douglas was light years ahead of Lancaster in the intelligence dept. as one would usually expect from his tribe. Including having the sharpness to own the film rights to “One Flew Over the Cuckoo’s Nest” and handing it on a silver platter to his son. If you believe Wikipedia’s numbers (and I am inclined to) the budget for the film was $3 million and it took in $109 million in box office. Anyone want to figure out what the Danielovitch family made on that on a percentage basis??? Douglas was also Executive Producer for Spartacus that cost $12 million and grossed $60 million, a film written by a blacklisted “communist” writer (non-credited at the time) . I’d say Kirk Baby was about as good at smelling out a dollar as Warren Beatty was.

        1. Moses Herzog

          This is a double-whammy loss of face for me, as not only do I consider myself “better than average” on my movie knowledge (though far from an expert) I was under the impression that my Mom had shown me every Kirk Douglas movie in existence when I was growing up, but do not remember this one at all. I think I will see if my local public library has it, and do my best not to crack up when Mr. Lancaster is on the screen. Although Kirk baby was a womanizer extraordinaire, he was a sharp-minded well-read womanizer extraordinaire so I do have a degree of respect for him—as opposed to other stars my Mom made me suffer through growing up—such as Charlton Heston—-who I think should have stuck to things he was better suited for. Female economics majors, remember to tilt your eyes downward shyly after the link jump:

        2. Johannes

          Good movie.
          Directed by John Frankenheimer, he also did “Ronin”. Watch it Menzie, if you have not seen it yet.

      1. Not Trampis


        This was a great movie on the possible takeover by the military of government in the USA.

      2. noneconomist

        Three very good Lancaster films come to mind: “The Train”; “Atlantic City”; “ ”Ulzana’s Raid”. I also like him in “The Professionals” although he takes a back seat there to Lee Marvin and Jack Palance.
        My favorite of those is “Atlantic City” with Burt excellent as the never was hoodlum ( a go-fer for the real mob guys) infatuated with Susan Sarandon and the recipient of a stash of illegal drugs.
        He made numerous westerns, the best being “Ulzana’s Raid.”

  6. Moses Herzog

    This fine Sunday morning, while the fruit cake relatives are at church so they can hear the preacher change the names of whatever story he is regurgitating from a “Reader’s Digest” back issue, I am drinking “Reign” energy drink and reading “Jewish Comedy: A Serious History” by Jeremy Dauber. I have taken the great scholar JBH’s criticism that I depend too much on toilet humor to heart, and have decided I’m suing the author if I have to tell another shitty joke about this shitty world after reading this. Well, that’s all I have to say about this, I’m all crapped out.

    1. ilsm

      Republicans are not of the mind that political opponents are guilty until proven innocent. The prosecutor that matter is named Durham.

      When Barr gets to the root of who “ran” the surveillance, and why no actions were taken before the election…. After the 2020 DNC convention a set of indictments will be actionable. By then the DNC will have immolated itself.

      BTW where did you get your PhD in ’83? Your dissertation topic? How did you forget so much logic?

      1. Barkley Rosser


        Oh dear. It looks like you have been watching too much Sean Hannity again. There was no “surveillance” of the Trump campaign. The surveillance was of Carter Page, but it began after, September 2016, by which time he was no longer working for the Trump campaign. He had reportedly previously been on the radar screen of the FBI for questionable dealings with the Russians. The guy may be as innocent as driven snow (and he gets on Fox News all the time where he plays the sad victim, although he has not been indicted of anything or otherwise recently harassed), but the FBI looking at him was not something new.

        Regarding the Steele dossier, which seems to be a major focus of Barr’s, are you aware that about 73 percent of it has been verified, ilsm? I think there have been two items in it found not to be true: the claim that Michael Cohen visited Prague in 2016, and the claim that in a meeting with a Rosneft official Carter Page had been offered a massively financially valuable deal. While the latter is false, it is true that he did meet with a Rosneft official in Moscow, with the full contents of that meeting not known.

        One item whose truth or lack thereof has not been determined is the “salacious” item about Trump and some prostitutes. I find it funny that what long seemed needing to be suppressed is now bragged about almost as some sort of victimhood, that that this accusation appeared in the evil dossier. But we have since learned that he paid of several prostitutes to keep quiet before the election, and his hatred of Obama keeps being confirmed. Personally I view the story as being at least 50 percent likely to be true.

        As to why no actions were taken before the election, that was largely due to Mitch McConnell threatening Obama that he would complain loudly about bias if any actions were made, or at least if any publicity was made, with instead Comey conveniently popping in with his public announcement about reponing briefly the FBI investigation of Hillary, widely accepted to have been what pushed it over for Trump, while all this Russia stuff was kept quiet. As it was Obama did punish the Russians after the election in various ways, including closing their consulate in San Francisco.

        Offhand, ilsm, I see nothing here that would lead to indictments of DNC people or anything it has done to “immmolate” itself. Barr might be able to cherry pick some super classified stuff nobody has seen yet, but as it stands, he seems to be chasing after already discredied Trump and Fox team talking points, although they continue to ignore that these have been discredited. Why are you apparentlyi so unaware of this hard fact?

        1. pgl

          Thank you for taking the time to take out this incessant troll. Me? I have grown tired of incessant BS to the point that I refuse to respond to his absurd comments.

        2. ilsm


          the dossier is a topic of its own…. 73% verified!

          there are more tales than Page.

          the dnc does not need the 2016 shenanigans to run amok

          2016 dnc was out of the ‘security apparatus’ loop .

  7. AS

    Professor Chinn,
    A little tutoring help is needed by me regarding your chart. I attempted to see if there is any Granger causation related to policy uncertainty and the various spreads shown. The only Granger causation I could find is for d(policy uncertainty) and d(spread 5yr-2yr). When I compared the VAR forecast of the spread to a naïve forecast of using the previous spread to forecast the next month, the naïve forecast showed a Theil U2 of 1.0 and the forecast showed a Theil U2 of 1.1 for the forecast period of 2015m01 to 2019m04. With my limited knowledge, it does not seem that policy uncertainty is linked to the interest rate spreads.

  8. Moses Herzog

    This guy seems to really have his finger on the pulse with what’s popular with voters. I think this guy was working with Debbie Wasserman Schultz as Hillary’s 2016 co-director of campaign strategy

    I haven’t seen someone this tuned in to the American heartbeat since Paul Ryan back in 2012:

    It’s a “strange thing” about the American people. When citizens have spent decades of their lives paying into a system, and some guy who has federal guaranteed healthcare for life by being a member of Congress walks in and says “F**K your healthcare and retirement, we need to balance the budget after I took insider trades with my knowledge of soon to be passed federal laws and paid a 15% tax rate on my winnings” they don’t react very well. How “odd”……..

  9. Moses Herzog

    HEADLINE “Economist Amazingly Admits He Was Wrong, But He Was Only Wrong Because All the Know-nothings Are Not as Smart as Him, and If the Know-nothings Were As Smart as Him, Then of Course He Would Have Been Right. News at 11″

    I hate it when all these “dumb loan consumers” get in the way of finance-industry paid economists cheerleading mortgage loans, don’t you people?? By the way, better lock yourselves into a mortgage rate right now before they lower again, or I’m gonna tell Sam Khater you’re all being dumb loan consumers again. Khater also says he likes anchovies a lot, and if you don’t like anchovies, well, you’re just not as smart as Sam Khater at looking at the positive flavor data underneath. You dumb consumers searching out the negatives. If you’d stop doing that (searching out the negatives I mean) then Khater would be correct that anchovies are the hot item of 2019. Try to get into Sam Khater’s deep data taste insight, you damned buncha blinded by clouds losers that don’t like anchovies.

    1. Barkley Rosser

      You are overdoing it again. Reading the story one finds that Khater has simply admitted he was wrong, no excuses, no caveats, no sneers at anybody. The sneering should be done at the very numerous economists that are wrong and simply never admit it, including several prominent advisers of Trump who have been discussed here.

      I would note that the article is now a month old and claims that the yield curve is forecasting a good economy. That is not exactly the case now, as this this thread has been noting.

  10. ilsm

    Barkley Rosser,

    It is early here in NH.

    Since you said:

    “Mitch McConnell threatening Obama that he would complain loudly about bias if any actions were made, or at least if any publicity was made,” Interesting, do we have tapes?

    What would McConnell have to say? That “Obama’s CIA/FBI ‘spooks’ are all over trump”? “Trying to throw the already certain election to Clinton’?

    Certainly not that Obama’s ‘spooks’ were concerned about treason! If they were then they should have acted!

    The Clinton non prosecution caused a little stir, I heard a few FBI types, and among federal employees who get trained each year on federal records act, to say nothing of handling sensitive security information……. I ail an employee if she were a tiny bit as ‘cavalier’ as Mme Secretary!

    I await Biden getting asked “what did you know, when?”

    1. 2slugbaits

      ilsm do we have tapes?

      No, but we do have the Mueller report, which makes note of this. And the story has been out there for a very long time and Mitch McConnell has never made any effort to deny it. McConnell probably didn’t expect Trump to win, but it seems quite likely that he was concerned that alerting the broader security establishment about Russian tampering with the election could very well have caused McConnell to worry about depressing GOP voter turnout and increasing Democratic voter turnout. The presidency wasn’t the only race that McConnell was concerned with.

      BTW, have you actually read the entire 448 page report? I have. Before reading it I suspected that AG Barr had given it a Trump friendly slant, but that one could at least argue that this Trump friendly slant was a plausible interpretation of the report. After having read the entire thing I don’t think anyone can say that anymore. AG Barr willfully and seriously distorted what the report actually said in Vol 2. And you really, really, really have to read the footnotes and not just the main narrative! According to Barr’s summary you’d think that Mueller was simply saying that Trump might or might not have obstructed justice…it’s just too hard to tell and different people can come to different conclusions. But that’s not at all what the report actually says. In each case of potential obstruction of justice the report spells out the three necessary components needed to reach the DOJ legal threshold for “obstruction of justice.” The report then specifically identifies whether there is sufficient evidence consistent with positive law and precedent for each of the three components. In some cases there might be sufficient evidence for one or two of the thresholds, but not all three. But in some cases there was convincing evidence for all three components. The report is crystal clear that if Trump were an ordinary citizen, then he would be charged with at least four counts of obstruction of justice. And in the footnotes the report also makes it clear that Trump could be charged after leaving office regardless of whether or not he is impeached by the House and convicted in the Senate. It’s no wonder that in his brief press conference Mueller could barely contain his anger and disdain with his old friend AG Barr. Personally I’m with Nancy Pelosi on this and I don’t want to see Trump impeached; but after reading the entire report it’s hard to argue that Trump didn’t commit obstruction of justice, which is what Mueller was really saying in a way that would be consistent with DOJ guidelines.

  11. sammy


    “Personally I’m with Nancy Pelosi on this and I don’t want to see Trump impeached.”

    So what you are saying is that any crimes Trump may have committed are not that serious

    1. 2slugbaits

      No, I’m saying Priority One is defeating him in 2020. He can be fitted for an orange jumpsuit after 12:00pm 20 Jan 2021.

      Have you read the entire report?

    2. Barkley Rosser

      They are even more serious than what is in the report. Something not in there at all and still being ignored by even Dems running for president and calling for his impeachment is massive violation of the emoluments clause of the Constitution. Nobody is paying attention to this because he has so many other crimes and we have never had a president even remotely accused of violating this one. Everbody is focused on things that got Nixon out like obstruction of justice, but here is something that the Founding Fathers thought was such a big deal that they put it into the Constitution as a total no no, something they would unquestionably view as a “huigh crime and misdemeanor” worthy of impeachment, if not outright jail time, but probably that too.

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