• It’s not the first time the Fed has fought inflation
• Fed has been fighting inflation with its main tool
• Steep rate hikes have historically preceded recessions
• Fed’s tool to fight inflation is raising the federal funds rate
• This is the fastest and most aggressive rate-hike cycle by the Fed since the 1980s
• After the 0.25%-hike in Feb 2023, the current rate-hike cycle became the most aggressive since the 1980s
• The Fed has hiked rates by 5.25% in the current cycle
• This has resulted in short-term rates becoming higher than long-term (yield-cure inversion)
• Yield-curve inversion signals 4Q23 US recession
• All recessions in the US since 1968 were preceded by an inverted yield curve
• As it turns, recession typically follows
• Average time from inversion, until the recession started, was about 1 year (so 4Q23)

• US is now at peak employment
• Peak employment precedes recession
• Unemployment now at 3.8% (same as April 2000)
• Puts upward pressure on wages, which is inflationary
• On the flip side, a strong labor market can keep the recession at bay

• Business lending has slowed; real estate and consumer loans flat
• Warns about a slowdown in business activity

• Composite leading indicators falling but seen a slight rebound recently
• The indicator looks at factors aimed at providing early signals of turns in the business cycle
• While the indicator has given false signals before, recessions have typically followed large falls
• 72 US bankruptcy filings in 1H23, more than the previous two years
• Private and public companies with over US$100m in assets at the time of bankruptcy filing
• “Filings in the first seven months of 2023 surpassed total filings for the previous year”
• S&P Global Market Intelligence recorded 64 corporate bankruptcy filings in July, the largest monthly total since March and more filings than in any single month in 2021 or 2022

• Retail sales have been slowing, which typically precedes a recession
• Consumer sentiment has fallen since 2020
• Credit card debt at US$1trn and growing while past due bills are rising

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