Short-term inflation rates have accelerated relative to longer-term expectations, causing a flattening yield curve and pointing to a possible recession, according to Lonsec Research.
The US 10-year Treasury yield hit three per cent, but Lonsec yield curves show that shorter-term rates have also risen in line with the Fed’s tightening path.
While a steepening yield curve typically means investors expect rising inflation and stronger economic growth, a flat curve means short-term inflation expectations have accelerated relative to the long term.
The US economy has fallen into a recession within two years of an inverted yield curve more than two-thirds of the time. Today’s yield curve is even flatter in comparison to curves associated with previous periods of Fed tightening.
Lonsec warned this could indicate a recession, as a negative spread has proven to be a reliable indicator of a future downturn in equity markets previously.
The San Francisco Fed agreed, but former Fed chair, Janet Yellen, said abnormally low cash rates could be to blame.
