The Fed's Achilles Heel

A deep dive into the yield curve and term premiums

The Fed Funds vs. 10y curve inverted in October 2022. The prior 8 recessions has seen such an inversion occur between 12-24 months before the onset of the contraction. At the current moment, we are 18 months from the inversion, with no recession in sight for the near future, so what gives? I think the curve was badly broken in 2021 and as a result the messages we can normally take from the curve shape are distorted.

This piece will be a deep dive into the historical messaging from the curve, term premiums and why this has been the biggest thorn in the Fed’s side in beating inflation.