Feb 16, 2022 • 3M

Recession Indicator Starting to Flash

The most historically reliable recession indicator, the yield curve, is starting to flatten

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Paul Cerro
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Source: Gurufocus.
  • The term yield curve refers to the relationship between the short- and long-term interest rates of fixed-income securities issued by the U.S. Treasury.

  • An inverted yield curve occurs when short-term interest rates exceed long-term rates.

  • The U.S. curve has inverted before each recession since 1955, with a recession following between six and 24 months later, according to a 2018 report. It offered a false signal just once in that time.

  • The yield curve has been flattening over the last few months as the Federal Reserve prepares to hike rates, and some analysts are forecasting more extreme moves or even inversion.

  • While rate increases can be a weapon against inflation, they can also slow economic growth by increasing the cost of borrowing for everything from mortgages to car loans.

  • The last time the yield curve inverted was in 2019. The following year, the United States entered a recession - albeit one caused by the global pandemic.

Until next time,

Cedar Grove Capital

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