Changes in interest rates cause swings in economic activity, but with a lag. The lag varies from cycle to cycle and economy to economy. Also, when interest rates rise, they cause the economy to fall (with a lag). And when they fall, they cause the economy to recover (again with a lag, though the lag may be different from when interest rates are rising). So, in the chart below, the change in the Fed Funds rate is plotted inverted, with a lag. I have chosen an 18 months lag, but as I said, it varies from cycle to cycle. With the GFC (2007-2009) the lag was longer, for reasons I've discussed before.
What this indicator points to is a recession as deep as the GFC, and a lower turning point at the end of 2024.
The QCI is an equally-weighted average of the volume of retail sales, industrial production, and non-agricultural employment. It closely tracks quarterly GDP. |
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