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Carlyle Group’s David Rubenstein: “We’re due for a recession”

Wall Street hopes to rebound Thursday after a day of major losses brought on by fears of a recession. In its worst day of 2019, the Dow fell more than 800 points on Wednesday and closed down more than 3%. The Nasdaq and S&P 500 also lost about 3%.

The losses came after the bond market flashed an ominous warning: the inverted yield curve, which means that the yield for 10-year Treasury notes fell below the yield for two-year notes. That inversion is seen as a reliable indicator of a possible recession.

David Rubenstein, co-founder and co-executive chairman of the Carlyle Group, one of the world’s largest private equity firms, said he’s “somewhat concerned” that a recession could be on the horizon.

“We haven’t had one for quite a while,” Rubenstein said. “Normally, since World War II, we’ve had recessions every seven years on average. We haven’t had one now for 10 years. So we’re due for a recession, and I think there are some signs that were are gonna head into one – but you can’t know for certain until you’re actually in it.”

One of those signs is the inverted yield curve. “Whenever we’ve had an inverted yield curve, we’ve had a recession – every time since 1955,” he said. “So it’s a good indicator.”

That doesn’t mean there will be a recession tomorrow. The last time the U.S. had an inverted yield curve, in 2006, it took about 500 days for the country to go into a recession, Rubenstein said.

In the meantime, he added, it’s important not to panic. “I think people panic because they watch TV shows, and all of sudden they think the world’s falling apart. The world’s not falling apart. We had a Great Recession a few years ago, and the world survived. It came back.” He also noted that “nobody that I know of is expecting a recession like the type we had in 2007, 2008 and 2009. We’re likely to have a more modest recession.”

The time to panic, he said, is if the global economy goes into recession; China, Europe and the U.S. all have negative growth; and Americans lose faith in their institutions. But currently, he said, “I don’t see that.”

He did, however, acknowledge that the U.S. does have some problems: namely, the lack of a trade agreement with China.

“People are very worried about whether we’re going to go into a recession because of a lack of a deal with China. I think if we could get a deal, I think it would be good. But it won’t be easy to get one. I think the administration is working on it, but the Chinese aren’t people you can push around so easily. They have their own considerations.”

And while President Trump has pointed fingers at the Federal Reserve, specifically Chairman Jerome Powell, Rubenstein expressed his confidence in the organization and its leader.

“[Powell] is a very smart person,” Rubenstein said. “And I want to point out though that Powell is the chairman of the Federal Reserve Board, but he doesn’t make decisions by himself.”

When asked if the Fed raised interest rates too soon, Rubenstein said, “I can’t say right now, but I would say it’s more likely than not that they will decrease rates again… if that were to happen, I think the markets would be calmed down a bit.”

“Powell has done a very good job in a difficult situation,” Rubenstein added. “It’s difficult to know which way the economy is going right now – and remember, he’s reading the same economic data as everybody else – and it’s not his decision alone. The decision about increasing or decreasing interest rates is made by the entire [Federal Open Market Committee], and it’s backed by the staff of the Federal Reserve Board. They’re very competent people. I think we should have confidence in the Federal Reserve Board.”

© 2019 CBS Interactive Inc. All Rights Reserved.


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