Gianluca Benigno points out that large and pervasive tariffs will have macro implications that spur deleveraging and a decline in R** in a pernicious (my word) feedback loop.
*Micro* becomes *Macro* and Macro-Financial Interactions
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Author Archives: Menzie Chinn
Stay Tuned for Dollar Share of World FX Reserves
Miran et al. want to end exorbitant privilege and the dollar’s role as a safe asset.
The Yield Curve: Steepening *and* Inverting
The time series, for 3m10s, 2s10s, as well as 1yr-FFR spread Miller (2019) identifies as max AUROC recession predictor at 1 month horizon.
Policy Uncertainty and VIX Down (from Pretty High Levels…)
Data available as of 11am CT today:
Guest Contribution: “Miran, we’re not in Triffin land anymore”
Today, we’re fortunate to have a guest contribution from Michael Bordo (Rutgers) and Robert N McCauley (BU & Oxford). A version of this post was published on VoxEU.
GS: From 25% Probability to Recession Call?
From Goldman Sachs, Sunday evening:
We are lowering our 2025 Q4/Q4 GDP growth forecast to 0.5% and raising our 12-month recession probability from 35% to 45% following a sharp tightening in financial conditions, foreign consumer boycotts, and a continued spike in policy uncertainty that is likely to depress capital spending by more than we had previously assumed. …
Random Observations
Inversion continues, with 10yr-3mo at same level as on 12/`6. VIX at 45. Kalshi odds on a recession at 68%, highest since trading started in August. EPU at 1203.
Near-Horizon Recession Probability: Estimate for April 2025
Using data through March.
Bill McBride/Calculated Risk on “Recession Watch”
I’m concerned about tariff policy impacting the economy. Usually fiscal, executive and trade policy decisions wouldn’t lead to an immediate recession, but these tariffs are a huge blunder. There have been other unforced errors – like cutting basic research spending – but that is more of a long-term issue.
As an aside: Imagine a tech company announcing they were going to cut spending by eliminating R&D. Their stock would plummet. That is what the U.S. has done with some of the DOGE cuts.
Nowcasts, 4/5
NY Fed nowcast down.