Jump to content

The key indicator of recessions, and the Fed's dilemma

Recommended Posts

In a nutshell, if you're really interested in the overall trajectory of the economy, you should be watching the behavior of the 'yield curve'--basically the difference between the interest rate for overnight funds that the Fed sets and the long-term interest rates on Treasury securities.


In previous business cycles, nearly all recessions were presaged by the change in the difference between each rate to a value that 'inverts' the curve, i.e. makes it so the overnight rate is higher than the long-term treasury security rate (the latter being a proxy for the return on assets).


As the author mentions, the spread between each rate is getting very close to zero right about now, and the curve will almost certainly 'invert' if the Fed proceeds with its planned interest rate hikes.


But will it?  The author says the market thinks it will chicken out.  I'm not so sure.  Either way, you should be watching the yield curve like a hawk. 

Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

  • Recently Browsing   0 members

    • No registered users viewing this page.
  • Create New...