Yield Curve Forecast: Cloudy With a Chance of Rain

by: Roger Nusbaum

Roger Nusbaum submits: I for one continue to be concerned about the yield curve. I saw visibility for inversion going back a long way, and we have been living with more than a slight inversion for a long stretch now. The ten year is yielding 4.66%, the 30 year is at 4.78%, and you know the Fed Funds are at 5.25%.

The historical implication is that this will cause a recession. It works most of the time, and this go-around will either fall into line or not, but I think it should at least be a concern. Some are saying that this is the bond market building in a slow down, and that Fed Funds will be lowered soon to adhere to what the market is saying.

I don't think there is any way (excluding external shocks) that the Fed will lower rates this year or in the first quarter of next year. I am not trying to predict when they will cut, I am just saying it won't be soon.

Lower rates could push back whatever the fallout might be in the housing market, which would be a plus, but being dismissive of the potential for recession is a mistake, IMO.

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