White House Director of the White House, Peter Navarro
White House adviser Peter Navarro disputes that the bond market flashed a recession signal last week, which led investors and sent the stock market .
The return on the benchmark index for the 10-year Treasury fell briefly below the 2-year rate Wednesday, a phenomenon in the bond market known as inversion of the yield curve, which is typically seen as a sign that a recession is on the horizon.
However, Navarro disputed this: "Technically, we did not have an inversion of the yield curve," he said in an interview on CNN.
The White House trade adviser called it a "flat curve" because the spread was too narrow. The return on the 1
"A reverse yield curve requires a large spread between the short and the long," Navarro said. "All we've had is a flat curve. It's a flat curve which is a very weak signal of any possibility."
However, investors did not appear to interpret the yield curve as of Wednesday. The Dow Jones industrial average dropped 800 points or about 3% in its worst performance in 2019 as investors grew to talk about the US economy.
But Navarro said that the yield curve actually sends a positive signal. He said foreign capital is entering the bond market because of the strength of the Trump economy, which offers long-term bond prices and offers interest rates, leading to what he said is the flat curve.
"In this case, the flat curve is actually the result of a very strong Trump economy," he said.
Navarro sees a tough case for the US economy this year. He said the Federal Reserve must address very aggressive interest rate cuts through the end of the year, which will lower the return on short-term bonds.
The Fed lowered the reference rate by a quarter point in July, the first cut since the 2008 financial crisis. However, Chairman Jerome Powell said the cut was a "mid-cycle adjustment," and the committee did not see financial weakness that would require a longer cycle of squandering interest rates.
Powell, under his July press. conference, said the US economic outlook still favorable, but the Fed decided to cut interest rates "to insure against downside risk from weak global growth and uncertainty in trade policy." He said that companies are more cautious about capital expenditure because of the ongoing uncertainty.
However, Navarro disputed that the trade war had an impact on the economy, and instead pointed to the Fed, which he said raised rates too far and too fast before swinging this year.
"The Federal Reserve chairman should look in the mirror," Navarro said.
However, American farmers have said that the trade war is beginning to hurt them. President Trump also decided to postpone some tariffs until December to avoid any impact on the holiday season, which appeared to contradict previous claims by the administration that China was carrying the burden of tariffs.
Despite warnings from farmers and businesses, Navarro suggested that the United States has taken over in the trade war with China: "We win," he said.