He says the signal from the curve suggests money markets should be pricing in a higher probability of the Fed’s policy rate going to zero in the coming year.
Anyone with finance knowledge here? What's the take away, recession, no recession?
Anyone with finance knowledge here? What's the take away, recession, no recession?
Effectively, anticipating a drop in the fed's rate is an expectation that economic activity will slow (recession behavior) and the fed will have to stimulate it by making money cheaper. To me, the interesting part of this is what the fed does after the rate reaches 0. Read up on Quantitative Easing and Ben Bernanke's response to the last major recession, it's a really interesting environment to learn a bit about.
Now the quoted folks might be wrong, or they might be right but sometimes the textbook scenario doesn't play out...
However there are questions about whether it will be right again. One reason is that when the US government implemented Quantitative Easing during the great recession, it did this by buying a bunch of treasuries. There is some question about whether the inverted yield curve we are seeing now may be a result of that, rather than solely a result of investors predicting below zero interest rates.