Our Privacy Statment & Cookie Policy

All LSEG websites use cookies to improve your online experience. They were placed on your computer when you launched this website. You can change your cookie settings through your browser.

October 29, 2019

Chart of the Day: Effective Fed Funds Rate vs. Recession Bands

by David Aurelio.

The Federal Reserve is expected to lower fed funds rates 25 basis points to a benchmark range of 1.5% to 1.75% (midpoint of 1.625%) on Wednesday Oct. 30, 2019. Typically when the effective fed funds rate falls, the yield curve, which is depicted by the 10 year less the 2 year U.S. treasury yield (note: the chart is inverted to highlight the relationship), tends to steepen.

One concern is that when the yield curve suddenly steepens following an inversion, it often precedes a recession. As a result, investors are paying close attention to corporate earnings reports this earnings season.

The majority of S&P 500 companies (77.1%) are beating 19Q3 earnings estimates. However, earnings are currently expected to decline 1.9% from the prior year. For the most part, commentary has been surprisingly upbeat. Some companies, such as United Technologies Corp (UTX.N) have even gone as far as to state that they don’t see a recession on the horizon.

During UTX’s conference call, Gregory J. Hayes, United Technologies Corporation – Chairman, CEO & President, said, “One of the things obviously that we will be concerned about is can they [Otis & Carrier] survive in a potential recession scenario. We don’t see one, but we’re going to make sure that they have the financial wherewithal that if we do see, I would say, a normal business cycle correction here sometime in the next couple of years, that they won’t lose their investment-grade rating.”

You can follow earnings season through the daily S&P 500 Earnings Scorecard report here.

 

Get In Touch

Subscribe

We have updated our Privacy Statement. Before you continue, please read our new Privacy Statement and familiarize yourself with the terms.x