We are skeptical of the signal from the yield curve now given the likely distortion from non-U.S. as well as U.S. QE and negative bond yields in much of the world.
The case for rate cuts is much weaker now than in previous mid-cycle Fed easings.
The latest data, and still-accommodative financial conditions, suggest the Fed does not have to cut rates aggressively.
We can see the meaningful risk of a recession starting as soon as 2020.
The problem with the recovery from the global financial crisis is not just lower growth rates, but still-depressed levels of activity.
While the United States fights a futile trade war with China, the rest of the world loses.
Maybe the U.S. economy can sustain an unemployment rate as low as 3.5% without a persistent upward bias to inflation, but we are highly skeptical.
U.S. GDP growth may seem weak relative to previous expansions, but it is unsustainably strong relative to potential.
Could a rise in the U.S. labor market participation rate help stop the uptrend in inflation? Not likely.
There is no way to know the precise level, and it can change over time.