April 20, 2022
Brian Rehling, CFA , Head of Global Fixed Income Strategy
Luis Alvarado, Investment Strategy Analyst
The predictive power of yield curve inversions
- In recent weeks, the Federal Reserve (Fed) has turned decidedly hawkish regarding the monetary outlook. Additional rate hikes and a balance sheet runoff are likely on the horizon.
- Some market participants are concerned that a near-term yield curve inversion could signal U.S. economic weakness ahead. The Treasury yield curve has historically been a powerful predictor of recession in past economic cycles.
- While we believe that economic growth will continue at a moderate pace, the risks are building that the economic expansion may slow more than expected given the ongoing threat from inflation. We are at a key inflection point.