# Fed Causes a Recession Source: https://www.youtube.com/watch?v=QjBfdn1LHYM Recap page: https://rapidrecap.app/video/QjBfdn1LHYM Generated: 2026-01-20T14:15:12.649+00:00 --- ## Quick Overview The video argues that the current inversion of the 10-year minus 2-year Treasury yield curve, currently at a 0.46% spread, does not guarantee an immediate recession or bear market because the historical correlation is not perfect, especially regarding the timing of the yield curve steepening after inversion and the actual start of recessions or market downturns. **Key Points:** - The current 10-year minus 2-year Treasury yield spread is 0.46%, indicating a normal yield curve shape after a period of inversion. - Historically, the Fed cutting rates (short-term yields falling) often correlates with recessions, but the recent 2022-2023 inversion was not followed by a technical recession (two consecutive quarters of negative GDP) in 2022 or 2023. - Historical analysis of the 10-2 spread shows that inversions have preceded every US recession since the late 1980s, with an average lag time of about 15 months. - The 2022-2023 inversion was followed by the yield curve un-inverting and steepening, which historically precedes recessions, but the resulting GDP decline in Q1 2025 (-0.6%) was very slight compared to historical recessions. - The S&P 500 chart shows that bear markets (like the 2000 dot-com bust and 2008 Great Financial Crisis) often correlate with recessions, but bear markets also occurred without official recessions, such as in early 2020 and early 2022. - The speaker cautions against relying solely on the two-quarter negative GDP definition for recession, emphasizing that the yield curve inversion/steepening timing is imperfect for predicting market tops, as evidenced by historical data where bear markets started before or after the inversion/un-inversion event. ![Screenshot at 0:10: The video displays a chart of the 10-year US Treasury yield showing an upward trend within a consolidation triangle, currently near the upper boundary.](https://ss.rapidrecap.app/screens/QjBfdn1LHYM/00-00-10.jpg) **Context:** The video analyzes the significance of the US Treasury yield curve, specifically the spread between the 10-year and 2-year constant maturity yields, which has recently un-inverted after a prolonged period below zero (inversion). An inverted yield curve is traditionally seen as a highly reliable predictor of an impending recession and subsequent bear market, as investors demand higher returns for holding shorter-term debt than longer-term debt due to expectations of future economic weakness and Fed rate cuts. The speaker contrasts this historical signal with recent economic data, particularly the 2022-2023 inversion, to assess the current risk. ## Detailed Analysis The speaker begins by noting that the 10-year Treasury yield is currently around 4.5% and is consolidating within a triangle pattern. He then discusses the spread between the 2-year and 10-year yields, showing a chart of the 10-2 spread from FRED data. This spread was inverted (below zero) for over two years, reaching a low of -0.91% in July 2023, but has since un-inverted and is now at 0.65% (as of Jan 2026 data shown). Historically, an inverted yield curve (2-year yield higher than 10-year yield) has preceded every US recession since the late 1980s, typically with a lead time of 6 to 24 months. The un-inversion (steepening) phase, where the 10-year yield moves higher than the 2-year yield, is often the crucial signal, as recessions frequently align with or follow this steepening. The speaker then shows the S&P 500 chart overlaid with recession bars (gray shaded areas) to examine the correlation between yield curve inversions and stock market declines. He points out that while inversions preceded the 1980, 1981-82, 1990-91, 2001, 2007-09, and 2020 recessions, the stock market often experiences significant drops (20% declines defining a bear market) either before the recession or without an official recession occurring, such as the 2022 decline which occurred without two consecutive quarters of negative GDP growth. The speaker concludes that while the yield curve is a strong indicator, its timing is imperfect; relying solely on it to time selling decisions is difficult because the lag time between inversion/un-inversion and the subsequent economic event is variable, and the market is a forward-discounting machine. ### Yield Curve Status - 2-year yield is currently 2.5% lower than the 10-year yield (normal curve) after an inversion period (0:00) - The 10-2 spread reached -0.91% in July 2023 and has since steepened to 0.65% (as of Jan 2026 data shown) (7:26) ### Historical Inversion Accuracy - Since 1977, all six recessions were preceded by yield curve inversions with an average lead time of 15 months (2:57) - Data since 1900 shows 28 inversions followed by recessions in 22 cases (3:00) ### Recession Definition vs. Market Action - The technical definition of recession (two consecutive quarters of declining GDP) was not met in 2022/2023 despite the inversion (5:53) - The S&P 500 experienced a 20% drop (bear market) in early 2020, early 2022, and late 2022, sometimes preceding or following the official recession dates (8:17) ### Historical Bear Market Timing - Bear markets often precede recessions (e.g., 1989, 2000), and sometimes occur without a recession (e.g., 2022) (9:49) ### Future Pricing vs. Reality - The stock market is a forward-discounting machine, pricing in future Fed cuts and economic conditions (10:50) - Trying to time selling based on the yield curve's inversion/steepening lag time is often impossible because the lag is variable (10:41) ![Screenshot at 0:10: The speaker gestures while referencing a chart showing the 10-year US Treasury yield trading within a large consolidation pattern.](https://ss.rapidrecap.app/screens/QjBfdn1LHYM/00-00-10.jpg) ![Screenshot at 1:40: A graphic displays a 'Normal Yield Curve' where yield increases as maturity increases \(upward sloping curve\).](https://ss.rapidrecap.app/screens/QjBfdn1LHYM/00-01-40.jpg) ![Screenshot at 2:00: A graphic displays an 'Inverted Yield Curve' where short-term yields are higher than long-term yields \(downward sloping curve\).](https://ss.rapidrecap.app/screens/QjBfdn1LHYM/00-02-00.jpg) ![Screenshot at 2:18: FRED chart showing the 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity spread, indicating the recent inversion period below the zero line \(2022-2024\).](https://ss.rapidrecap.app/screens/QjBfdn1LHYM/00-02-18.jpg) ![Screenshot at 4:00: FRED chart showing the 10-2 spread overlaid with US recession periods \(gray bars\) to illustrate the historical correlation between inversion and recession.](https://ss.rapidrecap.app/screens/QjBfdn1LHYM/00-04-00.jpg)