If we compare our current situation the calm before the storm in late 2006 and 2007, there are eerie similarities. As the chart above indicates, back during the housing bubble years, the fed stopped hiking rates in July 2006, with the effective fed funds rate hitting 5.31%. The Fed didn’t start aggressively cutting until August 2007, at which point unemployment was still only 4.6%, a mere 0.2 percentage points higher than its trough the prior year. Just looking at the unemployment rate, it would not at all have been obvious as of the summer of 2007 that the greatest financial crisis since the 1930s was in store.

What’s the takeaway? Even if the Fed holds rates steady through May, June, and July, it would be perfectly consistent with what happened going into the global financial crisis. So therefore, the bulls shouldn’t be running victory laps early this summer merely because the Fed sees no immediate reason to cut. The inverted yield curve still looks like a good indicator, and I think it’s still flashing DANGER, WILL ROBINSON.