“After a pause in September, the LEI resumed signaling recession in October.”

LEI signaling a shallow recession. The index is down 3.3% in the last 3 months and -.8% in October.

I hate to compare cycles, but the machine does and there are certainly similarities. The similarities became apparent with the release of CPI last week. In June of 2006 under Ben Bernanke, the Fed  raised rates to 5.25% the last in a 2 year campaign of rate hikes. The rate remained there for over a year. Oil initially dropped from $75 to $58 before shooting up to $140. CPI dropped from 4.2% in June 2006 to 1.4% just 4 months later. CPI then jumped to 4.4% by then end of 2007 and and then 5.5% in the middle of 2008. Over the course of the next year while the Fed was on pause, the S&P rallied over 20% by the middle of 2007. It eventually peaked in November 2007, 16 to 17 months after the pause.

The main point is that these cycles can last longer than many realize. From 2004 to 2006, the Fed raised rates from 1%-5.25%. From early 2022 to July 2023 the Fed raised rates from 0% to 5.25-5.5%. What happens now is not likely to exactly mirror the last major cycle, but the machine is certainly treating it similarly.

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