Former Fed Chair Ben Bernanke studied it in detail decades ago: the yield curve. And that yield curve is currently flattening and flattening. An inverted yield curve (in which the short-term interest rate exceeds long-term rates), normally signals that a recession is near. As a result, analysts keep a close tab on the spread between short-term and long-term yields. Whenever the yield curve spread narrows, there is cause for alarm. And last week, the yield curve spread continued to decline even further.

Despite the recent flattening of the yield curve, there are various analysts who argue that this trend is absolutely no cause for concern: a recession is, according to them, highly unlikely, despite approaching at a frightening rate an inversion of the yield curve.

Who is right? What is behind the flattening of the yield curve?

Yield Curve Spreads Keep Falling and Falling

The yield curve spread is falling, are we approaching an inverted yield curve? Source: St Louis Fed

The Fed Manipulates the Interest Rate, Hence the Yield Curve Is Useless

The Current Trend Is Completely Expected, Since the Economy Is Improving and Rates Rise!

Long-term US interest rates are not even rising! Source: St Louis Fed

Source: St Louis Fed



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