- Inverted yield curves - especially those driven by rapid shifts in short-term interest rates - tend to be interpreted as evidence of a risk that the Fed is about to hike the economy into recession.
- The inverted yield curve today is the natural end-result of a long period during which inflation has been a lot higher than expected. This, in turn, has gradually but surely, driven short-term rate expectations higher, and shifted policymakers’ preference for acting sooner and more aggressively.
- Until we see how bonds and equities absorb what will almost surely be a string of Fed hikes in Q2 and Q3, I’ll be keeping an open mind about what the inversion means, if anything.
For further details see:
The Inversion