The Inverted Yield Curve Loses Its Status As a Warning Indicator By Hardika Singh

Treasury yields have been inverted for the longest stretch on record, but a recession appears to be nowhere near. Meanwhile, lawmakers are weighing the fiscal impact of extending tax reductions that expire after 2025. And private-equity giants disclosed they have been cooperating with the SEC over texting violations. Read on for this and more.

Top News Wall Street's Favorite Recession Indicator Is in a Slump of Its Own

One of Wall Street's favorite recession indicators looks broken. An anomaly known as an inverted yield curve, in which yields on short-term Treasurys exceed those of longer-term government debt, has long been taken as a nearly surefire signal that an economic pullback looms.

In each of the previous eight U.S. downturns, that has happened before the economy sputtered. There haven't been any glaring false alarms. Now, though, that streak is threatened.

Hannon's Take: A Soft Landing From The Putin Shock By Paul Hannon

The European Central Bank will likely cut its key interest rate next week, setting the eurozone economy on a course for what policymakers hope will be a soft landing from the Putin shock .

Soft landings are relative, of course, and taming inflation hasn't been costless. The eurozone economy has stagnated for much of the last two years, and food prices are much higher than they were before Russia invaded Ukraine in February 2022. Nobody is expecting a speedy return to rapid growth.

But if its expectations are well founded, the ECB will have helped contain a surge in prices triggered by that invasion without a big fall in economic output and a large rise in unemployment.

U.S. Economy Republicans' $4 Trillion Question: Should They Pay for Extending Trump Tax Cuts?

Republicans want to extend the Trump-era tax cuts that lapse after 2025. A big point of debate now: Should they cover any or all of the $4 trillion cost-and how? The question pits the party's fervent belief in the economic power of tax cuts against many GOP lawmakers' oft-repeated concerns about federal debt and budget deficits.

Financial Regulation Private-Equity Giants Near Settlements With SEC Over Texting Violations

Some of Wall Street's biggest private-equity firms said they are negotiating settlements with the U.S. markets regulator over their employees' use of banned communication channels.

Blackstone, TPG and Carlyle Group disclosed in their latest quarterly filings that they have been cooperating with the U.S. Securities and Exchange Commission's record-keeping investigations and have begun discussions with the agency's enforcement staff about potential resolutions.

Forward Guidance Wednesday (all times ET)

2 p.m.: Fed releases beige book

Thursday

8:30 a.m.: U.S. GDP second estimate for first quarter

8:30 a.m.: U.S. advance economic indicators for April

Research Rate Cuts Coming But Political Risk Looms Globally

Political risk given the number of elections being held around the world this year casts a cloud on the economic outlook and expectations central banks will be ending the tightening cycle, Bank of Nova Scotia suggests. In its quarterly earnings report, the Canadian bank notes rate cuts are already under way in Chile, Peru, Colombia and Mexico and cuts are expected in the coming months in Canada and the U.S. The cumulative impact of higher policy rates around the world is now being felt widely in economies, Scotiabank says, and the slowdown is expected to reinforce downward pressure on inflation in some countries. - Robb Stewart

Basis Points The cost of insuring euro-denominated junk bonds against default using credit default swaps falls as risk appetite rises after comments from the European Central Bank chief economist Phillip Lane signaled that the ECB is likely to start interest-rate cuts in June. "[The comments] boosted risk appetite, helping U.S. stock futures edge higher," IG analysts say in a note. - Miriam Mukuru A federal judge sentenced former FTX executive Ryan Salame to 7 1/2 years in prison, saying his crimes and efforts to undermine transparency in the 2022 election merited a substantial penalty to deter others. - Caitlin Ostroff German consumer confidence continues to rise , increasing for a fourth month in a row, as purchasing power is set to improve with easing inflation, a monthly survey said. - Ed Frankl China's economic outlook seems brighter after a strong first-quarter performance and recent policy stimulus , the International Monetary Fund said as it raised growth forecasts for the country. - Jiahui Huang and Fabiana Negrin Ochoa The Bank of Japan will need to proceed carefully with any further policy changes, policy board member Seiji Adachi said, stressing that the central bank's decision to end easing measures wasn't a shift toward monetary tightening. Meanwhile, the central bank reported record unrealized gains on its stockholdings in the financial year that ended March, reflecting historic rises in Tokyo shares. - Megumi Fujikawa Australia consumer price pressures rose unexpectedly in April , sending a further warning to the Reserve Bank of Australia to remain vigilant, while affirming the central bank's decision earlier this month to put the possibility of a further interest-rate rise back on the table. - James Glynn New Zealand businesses reported falling price pressures and reduced wage demands in May, potentially opening the door for the Reserve Bank of New Zealand to lower interest rates earlier than expected. - James Glynn About Us

WSJ Pro Central Banking brings you central banking news, analysis and insights from WSJ's global team of reporters and editors. This newsletter was compiled by markets reporter Hardika Singh in New York. Send your tips, suggestions and feedback to [hardika.singh@wsj.com].

This article is a text version of a Wall Street Journal newsletter published earlier today.


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05-29-24 0715ET