Professor Campbell Harvey, professor of finance at the Fuqua School of Business at Duke University and the inventor of the most famous recession indicator — the inverted yield curve — joins The Julia La Roche Show for a wide-ranging conversation on the economy, the Federal Reserve, and the yield curve. 

In this episode, Professor Harvey highlights how the Federal Reserve made things worse in 2023 with its unnecessary rate hikes. According to Professor Harvey, we’re fortunate if the economy delivers slow growth this year in spite of the Fed’s damaging actions. He argues that the Fed will need to undo the damage they did with immediate rate cuts no smaller than 50 basis points at the next meeting. 

Elsewhere, Professor Harvey shares the origin story of the inverted yield curve indicator and it’s 8 for 8 track record in predicting economic recessions. Now that we’re in the 9th inversion, he shares that it’s way too early to call if we’re in a false signal. He also makes a case that the inverted yield curve is causing slower economic growth, and that’s not necessarily a bad thing because you avoid a deep recession. 

Links: 

DeFI and the Future of Finance: https://www.amazon.com/DeFi-Future-Finance-Campbell-Harvey/dp/1119836018

https://www.fuqua.duke.edu/faculty/campbell-harvey

https://people.duke.edu/~charvey/

https://twitter.com/camharvey

0:00 Intro 

1:00 Big picture macro view 

1:30 Understanding the current state of the economy and the role of the consumer

5:20 Fed needs to 

5:55 The story has to do with the consumer

8:30 Federal Reserve undoing the damage

10:00 Inflation, the false narrative, and policy errors

18:00 Fed rate cuts need to happen immediately 

21:27 What would Professor Harvey do differently at the Fed? 

23:30 Inverted yield curve indicator origin story

30:00 Difference between long-term rate and short-term rate is highly predictive of economic growth 

36:40 8 out of 8 without a false signal 

39:00 If Fed undoes the damage it created, there’s a good shot of a soft landing

39:30 What do folks get wrong when it comes to the inverted yield curve? 

45:00 The inverted yield curve is causing slower economic growth 

47:00 Understanding how the inverted yield curve works 

49:30 What keeps Professor Harvey up at night?