Expert Report: Inverted Yield Curve

Expert Report: Inverted Yield Curve

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US yield curve inverted

Since 2016 the federal reserve’s plan has been to consistently increase their benchmark interest rate to a point where policy makers would have leeway to battle any future downturn in the US economy. So, has the battle begun against the downturn?  A good indicator is the US yield curve.  That shows the relationship with short- and long-term interest rates of fixed income securities including bonds and treasury yields. Now typically, short-term interest rates are lower than long-term rates, reflecting a strong outlook for longer-term investment. For the first time since 2007, before the Great Recession, the US yield curve has inverted which means short-term rates have surpassed the long-term counterparts.  This is an extremely important recession indicator that economists and law makers track very closely.

The US curve inverted before the recession of 1981, 1991, 2001 and also 2008, the Great Recession. While we are in the longest bull run ever, will history repeat itself? And more importantly, will the Fed react before it’s too late?