Flattening Fears

The flattening yield curve, or the declining differential between long-term and short-term rates, is giving many heartburn. Since 1970, every time it’s inverted (and short rates have exceeded long rates), a recession has followed. Are we near a recession? Very unlikely! The current flattening suggests nothing more than continued short-end Fed rate hiking, little inflation expectations, and slow long-run growth due to weak population and labor productivity increases. Chillax.