In the Crain’s Cleveland Business July 17, 2018 article titled “Fed chiefs look to yield curve for insights into inflation, state of economy,” Atlanta Fed President is quoted as saying that inversion [of yield curve] could be a self-fulfilling prophecy if investors believe it will bring recession.
When we looked at the yield curve chart that was provided in the article, it seemed that the either a recession coincided with inversion or inversion coincided with recessions. However, there was little in the way of indicating that awareness of a pending inversion would lead the public to behave in a manner that would precipitate a recession.
It seems that there is enough coincidence of a narrowing of the yield curve and a recession to suggest that if it were a self-fulfilling prophecy then the period of 2010 was the beginning of that process. The year 2010 happens to be the period when the recession was considered to have ended. Yet, at the time there was no discussion of inversion and self-fulfilling prophecies.
It seems odd for a Fed Bank president to suggest that if people don’t believe it then maybe it won’t happen.