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15 9 Low interest rates encouraged businesses to take on a lot of debt, which should be quite manageable. Should interest rates increase too much, too quickly, the recent surge in lending to highly leveraged nonfinancial businesses could be the fatal weakness of this expansion, however. In addition, the junk corporate bond market is very large and is vulnerable to interest rate shock. Lending standards and collateral requirements probably were too easy to ensure that the collateral backstopping such lending is adequate. Many of these is highly leveraged loans are securitized, but that did not avert the crisis in subprime mortgage lending. To be concise, higher corporate debt loads constitute a vulnerability. For this and other reasons, rate hikes may lead to financial difficulties for businesses and their creditors as well as a sharp correction in the prices of risky assets (e.g., equities and bonds), which could swiftly push the U.S. economy into recession. The large and growing Federal budget deficit as well as the national debt will limit the federal government's ability to use fiscal policy to counter recessionary forces should they bear down on the U.S. economy, but these imbalances are very unlikely to trigger a recession. Similarly, student loan debt will not trigger a recession, but this imbalance will worsen a downturn once it is underway. The main risks to U.S. economic growth are (1) a full-blown trade war, (2) excessive risk taking in the form of leveraged lending to nonfinancial businesses, (3) financial panics and/or massive shifts in asset prices, (4) overly restrictive monetary policy, and (5) contagion from financial crises in developing economies. In addition, an inversion of the yield curve is possible. The probability of recession beginning sometime in the first half of 2019 is not high, but the risks to the outlook increase in the second half of 2019. If the yield curve inverts before mid-2019, a summer – or fall – 2020 recession is likely. In summation, the rising risk of recession reflects concerns about trade tensions, leveraged lending, inflated asset prices, a possible inversion of the yield curve, and contagion from financial turmoil in developing counties. At the time of this writing, a trade war was already developing, leveraged loan volumes were setting records, all the popular price/earnings ratios were above their long-term averages, the spread between the 10-year and the 2-year note was slim, and Argentina and Turkey were in the throes of financial crises. Nonetheless, absent major shocks and policy mistakes the expansion could continue for some time. As always, energy prices are a wild card. The expectation is that oil prices will fall below their recent peak levels to about $65 dollars per barrel, but the political situation in several significant oil-producing regions is tenuous and oil supplies are much tighter than they were one year ago. Finally, informal executive branch communications and/or policy changes with the potential to destabilize markets are impossible to handicap with any degree of confidence, but add somewhat to the overall riskiness of the economic environment.