Yield curve pioneer warns Fed not to raise rates, predicts possible recession in 2024

Yield curve pioneer Campbell Harvey warned the Federal Reserve against raising rates again later this year, telling FOX Business on "The Claman Countdown" that a recession might still be coming in 2024.

Harvey, credited with forwarding the utilization of the yield curve to predict longer-term market issues like recession, also told "The Claman Countdown" current Bureau of Labor Statistics and GDP figures might be distorted in real-time by nationwide issues like rising credit card debt.

The yield curve, which depicts the ultimate yields for long-term and short-term bonds, remains inverted, host Liz Claman said, reporting that three-month treasuries appear to be paying out more than longer-term T-bills.

"That's a signal a recession is coming, but where is it?" she asked Harvey, who teaches at Duke University.

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Harvey said the yield curve inversion, at 212 days thus far, is not at its average length, which he projected would be sometime in 2024.

"The average length is more like 13 months, so what it's pointing to is a recession in 2024," he said.

"I know 2023 might be a little surprising in terms of the robust GDP growth, but that's purely driven by consumer spending, money saved up during COVID stimulus, and that's run out."

As consumers curtail their buying and rely more and more on credit, credit card bills — which feature exponentially higher interest rates than typical borrowing — are rising steadily.

"So consumption is not going to save the economy in 2024," he said.

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Citing an upcoming meeting of the Fed's Federal Open Market Committee potentially leaving rates unchanged, Claman reported an approximate one-third chance the United States will see another 0.25% rate hike. She added European banks raised rates Thursday.

"It's a catastrophic error if they raise rates again," Harvey said. "And the narrative is false — the 3.7% inflation that we got — it's not 3.7%, and so if you look at the inflation number, a third of that inflation is driven by shelter and 70% of that inflation-print is shelter, so shelter's running at 7.3%, and that doesn't make any sense. It's disconnected from the actual housing prices and rental costs."

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"If you take shelter out, inflation's running at 1.1%, and if you put, let's say, 1 or 2% inflation in for shelter, it's running at 1.5%. So it's not 3.7, it's 1.5, and it's because the [Bureau of Labor Statistics], when they construct inflation, they use something that's called owners' equivalent rent, and it's very smooth. The numbers today are reflecting what happened two years ago," he argued.

Harvey added that the Fed potentially raising rates again, given his analysis, would push the U.S. markets into a "hard landing."

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