Oct. 9, 2023
The yield curve
When we look at economic conditions,
Speculation about an impending
What typically happens right before a recession, though, is that short-term rates drop in anticipation of the Fed cutting rates to fight a recession, causing the yield curve to un-invert (short-term rates become lower than long-term rates). Recently, however, there has been a notable increase in longer-term rates, like the 10-year U.S. Treasury bond. The yield curve has become less inverted, but short-term rates have been fairly stable and the market and Fed both expect either only one or even no more rate hikes. This is different and not what would normally precede a recession.
One read of the situation I just outlined is that we may face slow growth and persistent inflation (“stagflation”). However, inflation expectations embedded in markets have not so far increased with the rise in long-term rates. Across the many asset classes we manage, I continue to see underlying economic strength. I am cautiously optimistic for a slow and bumpy but continued takeoff for the economy, barring significant geopolitical turmoil, which is ever-changing and difficult to predict.
If you have questions about the potential impact of the economy and markets on your personal financial strategy, be sure to connect with your
David Royal is executive vice president and chief financial & investment officer at Thrivent.