GDP: US economy grows at 3.3% annual pace in fourth quarter, faster than expected

[alphabet1]

@resjudicata Do you mind explaining the chart and its implications for clueless people like me?

 

[ron76569]

@alphabet1 https://www.chicagofed.org/research/data/nfci/current-data

The NFCI is a weighted average of 105 indicators of risk, credit, and leverage in the financial system — each expressed relative to its sample average and scaled by its sample standard deviation. As such, a zero value for the NFCI can be thought of as the U.S. financial system operating at historical average levels of risk, credit, and leverage.

Positive values of the NFCI indicate financial conditions that are tighter than on average, while negative values indicate financial conditions that are looser than on average.

 

[rech]

@davidcrb The yield curve is still inverted. It's not a a crystal ball, but it's nothing to take lightly. Until people start pricing future money as more risky than current money, I'm skeptical.

 

[stormboy1]

@rech It seems a reasonable bet that interest rates are going to come down at some point even if their isn’t a recession.

 

[rech]

@stormboy1 Interest rates are a leading indicator, not a trailing indicator. I would make sense if the interest rates reverted to the standard time-value of money before we start talking about the economy being fine.

 

[stormboy1]

@rech Isn’t the curve being inverted just an indicator the market is betting rates will fall so demand for long term debt to lock in current rates is high? Normally if you think rates are going to be lowered it’s because you expect the economy will need to be stimulated. But in this case maybe they will slowly lower rates to get to a more neutral posture without the economy going into recession first.

 

[rech]

@stormboy1 The only reason rates would fall significantly is in the case of a economic crisis. The methodology of where interest rates should be is complicated and hotly contested, but in general, betting on very long-term rate's downward movement involves some type of crisis.

In generally, rates where they are right now ≈4% is below historical averages (granted, not recent history), but with multiple downgrade events, it's extremely difficult for me to say that the inverted yield curve is just smart money betting on the duration and convexity of long bonds during a drop in rates because the economy is getting better. It's leaving so much money on the table it's ridiculous. You have a risk-free 1.5%, and short term interest rates aren't even above 6%. If rates were >8%, I could see that bet, especially at rates from the late 70's, but it makes little sense to me in the current environment for rates to be so overwhelmingly lopsided.