When short-term interest rates rise above long-term interest rates, economists call it an “inverted yield curve”, and it’s said to be an accurate indicator of an oncoming recession. A few weeks ago, the yield gap narrowed to only .5%. In the past, this has directly preceded a recession, so some economists think we’re in for one. Economist Bruce Steinberg explains this and more in his April 2018 Employment Report.
“Some say, including a number of Fed officials, do not feel a flattening of the yield curve is particularly worrisome or even unusual by historical standards for a variety of reasons. Some of the reasons presented is that the economy is different today than in the past and the financial markets are fundamentally strong so rising interest rates and a flattening of the yield curve that may eventually become inverted will not result in a recession. That could be true, but probably is not. They said that the last time the yield curve started to flatten and eventually resulted in an inversion and subsequently there was a recession.” (Bruce Steinberg)
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