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Home | Blog | Listen to the Yield Curve

Listen to the Yield Curve

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12/27/2005

Because it tells a story. Today, the yield curve inverted. Long-term maturities are now paying a lower interest rate than short-term maturities. In a quote from the USA Today article, the last sentence, er, stands out:

Other economists say the curve has lost its significance because special factors, such as the government shifting issuance to shorter maturities and strong demand for Treasurys from foreign buyers, have distorted the curve's economic signals.

An inverted curve doesn't cause economic weakness by itself, although it has been correlated with weakness in the past, said Bill Dudley, an economist for Goldman Sachs. He argued that tight monetary policy is the underlying cause of most slowdowns.

Karen DeCoster, CPA, has an MA in economics and works in the healthcare industry. She has written for an assortment of publications and organizations, including LewRockwell.comMackinac Center for Public PolicyTaki's MagazineEuro Pacific Capital, and the Claire Boothe Luce Policy Institute. Her website is KarenDeCoster.com.

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