Recession fears explained in one simple sentence

Stocks fell sharply on Wednesday after the bond market flashed recession warnings. But what exactly does that mean?

One economist says the reaction was overblown and believes the bond market today is looking a lot like the stock market bubble of 1999.

“What’s happening in the bond market today is, all they are saying is, we think the Fed is going to keep interest rates low forever and I think they’re wrong,” First Trust Advisors chief economist Brian Wesbury told Connell McShane on "Cavuto: Coast-to-Coast" Thursday.

“I’m likening the bond market today — I think it’s the biggest bubble we’ve had in a market since the '97, '98, '99 bull market in stocks. Back then, remember, stocks were going to go to the moon, and there was never going to be a recession again, and this time I think we have a bubble in bonds mistakenly and people believe a recession is coming, and they are just as wrong today as the stock market was in 1999.”

In Wesbury’s opinion, slightly higher interest rates won’t be a disaster for the economy, however, once they normalize, they can hurt people “who think this bond market rally is going to continue forever.”

“Interest rates right now — let’s say they go up 2 percent. So we are at 3.5 percent – they’re still really low compared to history. We’ve had strong housing markets, strong auto markets, with higher interest rates than this — 1.5 percent on a 10-year — 2.5 percent on a 30-year. Both of those are below the rate of inflation. And so you can’t have interest rates that low for long without having interest rates go up,” he explained.