I just seen a post hit the page about how the yield curve is the most inverted it's ever been, and how we're in for an extremely bad recession. The truth is I don't know, but one thing I do know is that using the yield curve to back up this opinion is extremely flawed.
The reason why the yield curve is so inverted right now is because markets predict that inflation will be fought off by these increased rates. The belief seems to be that the speed of incline will be matched with a similar decline. Where this decline begins is what the market has been trying to estimate over the past 6 months, and it's been wrong each time.
That being noted, anyone expecting the yield curve to be anything other than inverted isn't really looking at what we know. We've seen that current rates have caused the CPI to fall 0.2% below expectations, quite a huge blow for future rate hikes. This means that current rates have finally helped to contain inflation. The next question will be whether we've gone too far.
When the next CPI results are released, they will dictate the shape of the curve. If we see an extremely low CPI result, we are most likely going to see an even more inverted curve, as expectations will grow on the Fed to maintain/lower current rates, meaning that long term bonds will face lower rates in the future.
On the other hand, if the CPI numbers pick up, we'll see the yield curve more likely than not pull back, although we probably won't see it un-invert, simply due to the fact that there's a common belief that now might be the best time to invest in bonds. And where that belief exists, there's the belief that rates will not stay this high for long, otherwise why not wait another month?
We've already entered a technical recession, but personally, I don't see it being all that bad. Unemployment is still very low, inflation seems to be taming. To me, it looks like we may just end up having a few years of low growth.
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