Yield curve inversion will lead to asset bubbles not recession, says Tom Porcelli, the chief US economist at RBC.
Ellyn Hae of The Bubble Show makes a bubble as she participates in the opening of a newly finished Ocean Explorer section at SeaWorld in San Diego, California.A yield curve inversion, which occurred last week, often signals a recession is coming in the medium-term.He says asset bubbles are the real risk as US economy continues to outperform the rest of the world.
Usually, investors receive a higher interest rate for the longer they commit funds - when the opposite happens, as it does during a yield-curve inversion, many people take this to be a strong signal that markets are flashing a warning sign. In contrast, Tom Porcelli, RBC's chief US economist, believes the risk associated with a yield-curve inversion is not a recession but an asset bubble. He argues the current inversion does not follow the historical pattern where domestic investors drive down long-term rates due to fears of short-term economic turbulence.
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