Falling profit margins typically precede a recession. Last week, the Bureau of Economic Analysis released the latest profit margin numbers that clearly point to an oncoming recession.

corporate-profits

Notice how the last two recessions (shaded areas) came within six months of a -20% change from a year ago (red line). The only thing that is different this business cycle is the record low-interest rate. In other words, low-interest rates are what is propping up the economy right now. Not exactly a revelation but something you should watch carefully. If the Federal Reserve hikes rates too soon, we could go into a recession quickly.

Democrats do not want Yellen to raise interest rates before the election. Barney Frank recently told the Fed board not to risk destabilizing markets and perhaps the broader economy before the Presidential Election. The Federal Reserve is supposed to be independent and politically neutral in their rate hike decisions.

Why are Democrats so afraid? Hillary Clinton and Democrats are bragging about how much Obama improved the U.S. economy and how strong it is now. Are Democrats so scared of a little quarter point rate hike because they know how hollow the “Obama recovery” really is?