Yield Curve Not Suggesting Imminent Market Peak, Recession

Jon Banking

One of the most frequently cited predictors of a recession is when short-term interest rates rise above long-term interest rates. This is referred to as an “inversion of the yield curve” and typically happens when bond investors have a negative outlook on the economy. If you’re not familiar with the basics of the yield curve, please see What Is the Yield Curve Telling Us about the Future? for more background.
Here is what the Federal Reserve Bank of New York says on their website regarding the Yield Curve as a Leading Indicator:
The yield curve has predicted essentially every U. S. recession since 1950 with only one “false” signal, which preceded the credit crunch and slowdown in production in 1967. There is also evidence that the predictive relationships exist in other countries, notably Germany, Canada, and the United Kingdom.
Currently, the yield curve for the US is flattening – and not inverted – so there is no imminent signal that the US economy is facing a recession.
The big question is timing.

This post was published at FinancialSense on 07/19/2017.