If a prediction of a recession causes the market to crash, can it be said that the prediction itself is part of the cause of the recession? Like a self-fulfilling prophecy?

Question

If a prediction of a recession causes the market to crash, can it be said that the prediction itself is part of the cause of the recession? Like a self-fulfilling prophecy?

In: Economics

Answer 1

The yield curve inverts based on the bond markets expectations of future short-term rates.

Future short-term rates are basically determined by the health of the economy. Essentially low rates = low growth.

So once the bond market thinks that the economy is slower the future than it is now, the shorter-visioned stock market participants get scared.

So we can circular reference ourselves into a market crash but not a recession, which is hard GDP data. Unless consumers consume less + companies spend less + etc the economy won’t actually shrink 2 quarters in a row, which is the definition of a recession.