Yield Curve Inversion: A Clear But Unlikely Danger

Investors focus on the yield curve with good reason—an inverted curve has historically led to recession and eventual stock market losses. However, these stock market declines take time to materialize, suggesting that an inverted yield curve is less a “predictor” of stock market declines than a challenge to economic functioning. The Fed is cognizant of this history and, absent an upsurge in inflation that forces its hand, will seek to avoid significant yield curve flattening.